Japan: Poster child for NGDP Targeting

Historinhas

This take on Japan provides the clearest demonstration that nominal spending, determined by the Central Bank´s monetary policy, is crucial to the macroeconomic outcome. It is also a reminder that no matter how much ‘fiscal stimulus’ a government provides, if monetary policy does not provide support, there´s nothing to be gained and a lot to lose in terms of high debts and deficits. Finally, the Japanese experience demonstrates the danger inherent in a monetary policy geared, unwaveringly, to the attainment of ‘price stability’ or ‘inflation targeting’ on steroids.

The Big Picture

The chart illustrates how the Japanese economy evolved during the decades following WWII. We identify three stages of the growth process. In stage one, from the 1950s to early 1970s, Japan was ‘catching up’ or narrowing the gap relative to the US. From that point up to the end of the 1980s the gap remained relatively constant but began…

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