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The Japanese Economy and Economic Policy in Light of the East Asian Financial Crisis

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  • Ramkishen Rajan

Abstract

The depth and breadth of the East Asian financial crisis has added a sense of acute urgency for some concrete and credible measures by policy-makers to revitalise the Japanese economy. While steps to be taken for the long-run competitiveness and economic revitalisation of the Japanese economy are clear (with the only doubt being about whether and how effectively they will be implemented), those needed to boost aggregate demand in the short run are far less obvious. Given the near-zero nominal interest rates in Japan, most observers argue that an expansionary monetary policy would be ineffective. However, as with Krugman (1998a,b), we argue that once a distinction is made between real and nominal interest rates, it is logically possible for monetary policy to be effective in raising demand if it is able to create inflationary expectations. This could probably be effected through explicit announcements by the Bank of Japan of the intention to target a certain inflation rate in the future. [Working Paper No. 2]

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  • Ramkishen Rajan, 2010. "The Japanese Economy and Economic Policy in Light of the East Asian Financial Crisis," Working Papers id:2695, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2695
    Note: Institutional Papers
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    References listed on IDEAS

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    Cited by:

    1. Ramkishen Rajan, 1998. "Restraints On Capital Flows : What Are They?," Macroeconomics Working Papers 22383, East Asian Bureau of Economic Research.
    2. Anisha Sabhlok, 2010. "The Evolution of Singapore Business: A Case Study Approach," Working Papers id:2818, eSocialSciences.

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    More about this item

    Keywords

    East Asian; financial crisis; policy-makers; revitalise; Japanese economy; nominal interest rates; expansionary monetary policy; inflationary expectations; inflation rate;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises

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