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Japan Inside the Black Hole

Author

Listed:
  • Percy Ip

    (Department of Economics, Macquarie University)

Abstract

When the demand for money is infinitely the interest elastic, injecting base money into the system is akin to money being sucked into a Black Hole. Economics activity will not be revived by driving the rate of interest to zero. Full employment can only be restored by a judicious combination of fiscal, monetary policy should aim at raising Tobin's q, not lowering the cost of funds. Deflation can be good or bad. 'Stagdeflation' is bad whilst 'growthdeflation' is good. Targeting inflation treats only the symptom, not the disease. Trade liberalisation by Japan is superior to yen depreciation as a means of exploiting the foreign trade multiplier to the benefit of the global as well as the Japanese economy.

Suggested Citation

  • Percy Ip, 2003. "Japan Inside the Black Hole," Research Papers 0308, Macquarie University, Department of Economics.
    • Handle: RePEc:mac:wpaper:0308
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    File URL: http://www.econ.mq.edu.au/research/2003/JIBH160603MU.pdf
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    More about this item

    Keywords

    monetary and fiscal policy; liquidity trap; inflation; deflation; stagflation; Japan;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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