TITLE

BANK OF JAPAN'S POOR PERFORMANCE

AUTHOR(S)
Cosgrove, Michael; Marsh, Daniel; Gasper, Louis
PUB. DATE
September 2008
SOURCE
Review of Business Research;2008, Vol. 8 Issue 4, p118
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Japan has experienced deflation for six of the past nine years, as measured by their CPI. The Bank of Japan's (BOJ) objectives include an explicit inflation target: maintaining "price stability." Price stability for the BOJ prior to 2006 apparently meant no inflation and no deflation. The BOJ considered both inflation and deflation as "...a threat to our daily lives." In its current monetary policy framework (since 2006) price stability to the BOJ supposedly means an approximate range in the year-over-year change in the CPI of between zero and two percent. Analysis of growth in monetary aggregates and stability of monetary demand measures, however, suggests that the BOJ is still pursuing a monetary policy that is consistent with bouts of deflation since 2006. BOJ officials may be aiming for periods of both mild deflation and mild inflation to approximate a minimal change in the price level over some medium-term time span. Monetary policy appears to lose its effectiveness at very low levels of inflation or deflation in Japan. The policy implication of this paper is that the Bank of Japan needs to achieve an inflation rate that approximates the upper end of its current target range, two percent. Such an inflation rate is likely to coincide with a more effective monetary policy, financial stability, and sustainable economic growth in Japan. It may be that Japan's deflation problem stems, in part, from the BOJ being unaware that the monetary relationships which held prior to 2000 no longer worked once Japan experienced near zero inflation or deflation in the post-1999 period.
ACCESSION #
35601375

 

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