Thursday, June 13, 2013

Japan's Great Stagnation - Hans-Werner Sinn (ed.)

Edited in 2006 by Michael M. Hutchinson and Frank Westermann as part of the CESifo Seminar Series in Economic Policy, Japan's Great Stagnation presents 9 papers trying to explain the reasons behind Japan's prolonged economic downturn.

Though it might seem outdated, I recommend this book for three reasons:

  • Prophetically, the book's subtitle is Policy Lessons for Advanced Countries. In light of the recent developments taking place in the West since 2008, this book is a must read: the U.S. and Europe shouldn't spend more than 20 years with suboptimal growth.
  • In the introduction, Hutchinson, Ito, and Westermann mention that the Germany is the most likely country to follow Japan's steps. With hindsight, that statement was clearly a mistake: Germany is the only advanced economy growing at relatively decent rates. The Euro and the common monetary policy explains most of that: what the common monetary policy has implied is that the Greek people pay the lack of transparency of the German banks.
  • In their paper, Kunio Okina and Shigenori Shiratsuka argue that the zero interest rate policy failed because it was unable to change inflation expectations among bond traders. It is too early to say whether  Abenomics succeeded changing expectations, but if the developments of the last week are worth something, I'm afraid somebody will update Okina and Shiratsuka's work with more recent data...

Graph of Currency Exchange Rate - USD vs. JPY
The introduction touches tangentially the issue of misalligned property prices as one of the drivers of the economic crisis at the beginning of the 1990's. I think that the role of property prices in the economy has not recieved all the attention it deserves. Stephen Ceccheti issued a fantastic paper in 2008 on the topic, but I haven't too much since then. The BIS presents time series of property prices for free here.

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