Japan's Great Stagnation ─ Financial And Monetary Policy Lessons for Advanced Economies

After experiencing spectacular economic growth and industrial development for much ofthe postwar era, Japan plunged abruptly into recession in the early 1990s and since then hassuffered a prolonged period of economic stagnation, from which it is only now emerging. Japan'smalaise, marked by recession or weak economic activity, commodity and asset price deflation, bankingfailures, increased bankruptcies, and rising unemployment, has been the most sustained economicdownturn seen in the industrial world since the 1930s. In Japan's Great Stagnation, experts on theJapanese economy consider key questions about the causes and effects of Japan's prolonged period ofeconomic underperformance and what other advanced economies might learn from Japan's experience.They focus on aspects of the financial and banking system that have contributed to economicstagnation, the role of monetary policy, and the importance of international financial factors--inparticular, the exchange rate and the balance of payments.Among the topics discussed are bankfragility and the inaccuracy of measuring it by the "Japan premium," the consequences of weakbanking regulation, the controversial policy of "quantitative easing," and the effectiveness ofcurrency devaluation for fighting deflation. Taken together, the contributions demonstrate theimportance of a sound financial sector in fostering robust growth and healthy economies--and theenormous economic costs of a dysfunctional financial system.Contributors:Yoichi Arai, Robert Dekle,Zekeriya Eser, Eiji Fujii, Kimie Harada, Takeo Hoshi, Michael M. Hutchison, Takatoshi Ito, KenKletzer, Nikolas Muller-Plantenberg, Kunio Okina, Joe Peek, Eric S. Rosengren, Shigenori Shiratsuka,Mark M. Spiegel, Frank Westermann, Nobuyoshi Yamori

Frank Westermann is Chair for International Economic Policy in the Department of Economics and Business Administration,University of Osnabrueck, Germany.