A Quantitative Assessment of Financial Policies in the 1990s(in Japanese)

Japanese economic activities have generally been stagnant during the last decade in the 1990s, with occasional signs of modest improvement. Among others, one reason of such weak economic developments has been attributed to delay in easing the financial policy. This paper is attempting to provide quantitative assessment of the impact of financial policies on the Japanese economy by carrying out macro econometric model simulations. It is shown that interest rate reduction in early 1990s could support the Japanese economy. The real GDP might be higher by 0.4 per cent in fiscal 1994 and by 0.6 per cent in fiscal 1995 compared with the actual economic developments. Even in the case of "zero interest rate" in the late 1990s, financial policy might still be effective in stimulating the economy. Introducing the forward-looking behaviors into the traditional macro econometric model, monetary expansion by 1 per cent is shown to have an impact of raising the real GDP by around 1 per cent mainly due to the depreciation of the exchange rate. This impact is significantly larger than that suggested by the traditional macro econometric model with the backward-looking behavior. The possible impact of monetary expansion would largely be dependent on either the economic behavior is forward-looking or backward-looking.