Japan’s Slow-down: Monetary Versus Real Explanations
Author(s)
Wilson, Dominic
Abstract
Two kinds of view about the recent stagnation of the Japanese economy have been particularly popular. The first adopts a monetary perspective, arguing that Japan has fallen into a liquidity trap from which only unconventional monetary policy can save it. The second maintains that a large part of Japan’s macroeconomic difficulties is structural and related to problems in the real side of the economy. It is argued that it is hard to justify a neat division between these real and monetary problems. In the long run, the conclusions of the 2 kinds of diagnosis are complementary, but in the short-term tension may exist, with loose monetary policy weakening incentives for structural reform, and structural adjustment exacerbating demand efficiency.
