Japan's malaise, marked by recession or weak economic activity, commodity and asset price deflation, banking failures, increased bankruptcies, and rising unemployment, has been the most sustained economic downturn seen in the industrial world since the s.
In Japan's Great Stagnation, experts on the Japanese economy consider key questions about the causes and effects of Japan's prolonged period of economic 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 economic stagnation, the role of monetary policy, and the importance of international financial factors--in particular, the exchange rate and the balance of payments. Among the topics discussed are bank fragility and the inaccuracy of measuring it by the "Japan premium," the consequences of weak banking regulation, the controversial policy of "quantitative easing," and the effectiveness of currency devaluation for fighting deflation.
Taken together, the contributions demonstrate the importance of a sound financial sector in fostering robust growth and healthy economies--and the enormous economic costs of a dysfunctional financial system. Rosengren, Shigenori Shiratsuka, Mark M. This is the rate that banks charge each other for overnight loans of federal funds , which are the reserves held by banks at the Fed. Open market operations are one tool within monetary policy implemented by the Federal Reserve to steer short-term interest rates using the power to buy and sell treasury securities.
Loans, bonds, and shares have some of the characteristics of money and are included in the broad money supply. Generally speaking, a higher real interest rate reduces the broad money supply. Through the quantity theory of money , increases in the money supply lead to inflation. From until , most Western economies experienced a period of low inflation combined with relatively high returns on investments across all asset classes including government bonds.
This brought a certain sense of complacency amongst some pension actuarial consultants and regulators , making it seem reasonable to use optimistic economic assumptions to calculate the present value of future pension liabilities. This potentially long-lasting collapse in returns on government bonds is taking place against the backdrop of a protracted fall in returns for other core-assets such as blue chip stocks, and, more importantly, a silent demographic shock.
Factoring in the corresponding " longevity risk ", pension premiums could be raised significantly while disposable incomes stagnate and employees work longer years before retiring. Because interest and inflation are generally given as percentage increases, the formulae above are linear approximations. The two approximations, eliminating higher order terms , are:. The formulae in this article are exact if logarithmic units are used for relative changes, or equivalently if logarithms of indices are used in place of rates, and hold even for large relative changes.
Most elegantly, if the natural logarithm is used, yielding the neper [ citation needed ] as logarithmic units, scaling by to obtain the centineper yields units that are infinitesimally equal to percentage change hence approximately equal for small values , and for which the linear equations hold for all values. A so-called "zero interest-rate policy" ZIRP is a very low—near-zero—central bank target interest rate. At this zero lower bound the central bank faces difficulties with conventional monetary policy, because it is generally believed that market interest rates cannot realistically be pushed down into negative territory.
Nominal interest rates are normally positive, but not always. In contrast, real interest rates can be negative, when nominal interest rates are below inflation. When this is done via government policy for example, via reserve requirements , this is deemed financial repression , and was practiced by countries such as the United States and United Kingdom following World War II from until the late s or early s during and following the Post—World War II economic expansion.
A so-called "negative interest rate policy" NIRP is a negative below zero central bank target interest rate. Negative interest rates have been proposed in the past, notably in the late 19th century by Silvio Gesell.
Along similar lines, John Maynard Keynes approvingly cited the idea of a carrying tax on money,  , The General Theory of Employment, Interest and Money but dismissed it due to administrative difficulties. This was proposed by an anonymous student of Greg Mankiw ,  though more as a thought experiment than a genuine proposal. A much simpler method to achieve negative real interest rates and provide a disincentive to holding cash, is for governments to encourage mildly inflationary monetary policy ; indeed, this is what Keynes recommended back in Both the European Central Bank starting in and the Bank of Japan starting in early pursued the policy on top of their earlier and continuing quantitative easing policies.
Countries such as Sweden and Denmark have set negative interest on reserves—that is to say, they have charged interest on reserves. In July , Sweden's central bank, the Riksbank , set its policy repo rate, the interest rate on its one-week deposit facility, at 0. The Riksbank studied the impact of these changes and stated in a commentary report  that they led to no disruptions in Swedish financial markets. US Federal Reserve called a historic end to quantitative easing in September and recently raised its benchmark short-term interest rate by a quarter percentage point and signaled that two more hikes are likely this year.
During the European debt crisis , government bonds of some countries Switzerland, Denmark, Germany, Finland, the Netherlands and Austria have been sold at negative yields.
Suggested explanations include desire for safety and protection against the eurozone breaking up in which case some eurozone countries might redenominate their debt into a stronger currency. From Wikipedia, the free encyclopedia. Government spending Final consumption expenditure Operations Redistribution. Central bank Deposit account Fractional-reserve banking Loan Money supply.
Japan's Great Stagnation: Financial and Monetary Policy Lessons for Advanced - Google Книги
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