8,603 research outputs found
The Role of Preconceived Ideas in Macroeconomic Policy: Japan's Experiences in Two Deflationary Periods
This paper examines the role of misleading economic ideas that most likely promoted the economic disasters of the two deflationary periods in Japanese economic history. Misleading ideas deepened the depression during the interwar years, and erroneous thinking has prolonged the stagnation of the Japanese economy since the 1990s. While the current framework of political economy is based on the self-interest of political agents as well as of voters, we highlight the role of ideas in policy making, in particular, in the field of macro-economy where the incidence of a particular policy is not clear to the public. Using two significant examples, this paper illustrates the role of preconceived ideas, in contrast to economic interests, as dominant forces influencing economic policy making.
The Role of Preconceived Ideas in Macroeconomic Policy: Japan's Experiences in the Two Deflationary Periods
This paper examines the role of misleading economic ideas that most likely promoted the economic disasters of the two deflationary periods in Japanese economic history. Misleading ideas deepened the depression during the interwar years, and erroneous thinking prolonged the stagnation of the Japanese economy since the 1990s. While the current framework of political economy is based on the self-interests of political agents as well as of voters, we highlight the role of ideas in policy making, in particular, in the field of macro-economy where the incidence of a particular policy is not clear to the public. Using two significant examples, this paper illustrates the role of preconceived ideas, in contrast to economic interests, that dominantly influenced economic policy making.Preconceived ideas, perception on economic mechanism, vested interests, great depression, deflation in contemporary Japan
Deflation and Japan Revisited
Deflation counts among the worst things that could happen to an economy, the conventional wisdom tells us. But are falling prices really that bad? According to the Austrian School of Economics, this is not necessarily the case. A distinction is commonly made between (1) growth, (2) cash-building, (3) bank credit and (4) confiscatory deflation. When it comes to the first three kinds, falling prices are regarded as benign free market responses to changing circumstance, whether these are positive or negative by themselves. When it comes to the latter, it is often regarded as something negative. Lately, the word deflation has become almost synonymous with Japan and its economic problems. In this paper, the development of the Japanese economy of 1990-2001 is revisited. While consumer prices fell in 1995 and 1999-2001, if other prices are taken into account, it appears that the overall price level actually fell during most of the years throughout the period, 1997 and 2000 being exceptions. When it comes to the causes of the deflation, any confiscatory deflation created by the government is ruled out, since the money supply has been rising throughout the period. Instead, it is suggested that the deflation of 1994, 1995 and 1996 was exclusively caused by rising supply, i.e. there was growth deflation. This could also have been the case in 1991 and 1992, but the evidence is somewhat inconclusive. Moreover, deflation in 1993, 1998 and 2001 appears exclusively to have been caused by falling aggregate demand, suggesting cash-building or bank credit deflation. Finally, deflation in 1999 might have been caused by a combination of growth, cash-building and bank credit deflation. In all of these cases, the falling prices are to be regarded as benign. Although based on the same set of data, these findings diverge sharply from the official Japanese view of the economy at the time. This is ascertained by studying the official records of the time the consumer price index moved into the negative domain for the first time recorded. Instead of seeing this as something possibly benign, the conventional fear of deflation on the part of the Bank of Japan came to dominate its actions. And if it is true that falling prices are a benign response to the changes that actually occurred in Japan at the time, then any measures taken to make prices not fall cannot be of the benign nature. And if there were one thing most economists would agree on it would probably be that Japanâs economic malaise is not over. This seems to be an important lesson for the future â preventing a free market adjusting, including deflation, to changing circumstances could possibly prevent or prolong a recovery.deflation; inflation; Japan; prices; GDP; GDR; liquidity trap
Exchange Rate or Wage Changes in International Adjustment? Japan and China versus the United States
Under the world dollar standard, a discrete appreciation by a dollar creditor country of the United States, such as China or Japan, has no predictable effect on its trade surplus. Currency appreciation by the creditor country will slow its economic growth and eventually cause deflation but cannot compensate for a savinginvestment imbalance in the United States. Under a fixed exchange rate, however, differential adjustment in the rate of growth of money wages will more accurately reflect international differences in productivity growth. International competitiveness will be better balanced between high-growth and low-growth economies, as between Japan and the U.S. from in 1950 to 1971 and China and the U.S. from 1994 to 2005, when the peripheral country?s dollar exchange rate is fixed so that its wage growth better reflects its higher productivity growth. The qualified case for China moving toward greater flexibility in the form of a very narrow band for the yuan/dollar exchange rate, as a way of decentralizing foreign exchange transacting, is discussed. --exchange rate,dollar standard,trade balance,China,Japan
Missed Expectations: The Argentine Convertibility
This paper studies the process that led to the Argentine crisis. The crisis is understood as a major disappointment of previous expectations, indicated by widespread insolvencies and abrupt declines in consumption. The analysis concentrates on the sequence of public and private decisions, and the varying perceptions and policy incentives that motivated them. In the nineties Argentina searched for a new growth trend. During much of the period, the behavior of agents seemed to be based on the anticipation that current and future incomes could sustain a value of domestic spending much higher than in the past. The government was motivated to reinforce those expectations, for signaling and political economy reasons. The convertibility monetary regime not only provided a very visible nominal anchor, but also operated as a basic framework for financial contracts, mostly denominated in dollars. Dollar contracting implicitly presumed that the dollar value of incomes would support the servicing of debts. Despite precautionary measures, the reliance on the sustainability of the real exchange rate increased over time. In the late nineties exports stopped rising and the foreign supply of credit tightened. Facing these contraints, the economy contracted and the solvency of the government was put into question. The financial system was vulnerable both in the event of devaluation and that of a (large) deflation-cum-adjustment. As was implicit in its design and management, convertibility proved to have very large exit costs.http://deepblue.lib.umich.edu/bitstream/2027.42/39900/3/wp515.pd
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U.S. Economy in Recession: Similarities To and Differences From the Past
[Excerpt] According to the National Bureau of Economic Research (NBER), the U.S. economy entered a recession in December 2007. It is now the longest recession of the post-World War II era. The recession can be separated into two distinct phases. During the first phase, which lasted for the first half of 2008, the recession was not deep as measured by the decline in gross domestic product (GDP) or the rise in unemployment. It then deepened from the third quarter of 2008 to the first quarter of 2009. The economy continued to contract slightly in the second quarter of 2009, before beginning to grow in the third quarter. This recession features the largest decline in output, consumption, and investment, and the largest increase in unemployment, of any post-war recession.
Previously, the longest and deepest of the post-war recessions were those beginning in 1973 and 1981. Both of those recessions took place in a context of high inflation that made the Federal Reserve (Fed) hesitant to aggressively reduce interest rates to stimulate economic activity. The Fed has not shown a similar reluctance in the current recession, bringing short-term rates down to zero. Although inflation exceeded the Fedâs âcomfort zoneâ in 2007 and 2008, it was not nearly as high as it was in the 1970s or 1980s recessions, and it began decelerating in the second half of 2008. Economists are divided over whether inflation or deflation (falling prices) is a bigger threat going forward.
Both the 1973 and 1981 recessions also featured large spikes in oil prices near the beginning of the recessionâas did the current one. Oil marketsâ disruptions and recessions have gone hand in hand throughout the post-war period.
The previous two recessions (beginning in 1991 and 2001) were unusually mild and brief, but subsequently featured long âjobless recoveriesâ where growth was sluggish and unemployment continued to rise. Since this recession has been neither brief nor mild (since the third quarter of 2008), it is unclear whether another jobless recovery should be expected.
A decline in residential investment (house building) during a recession is not unusual, and it is not uncommon for residential investment to decline more sharply than business investment and to begin declining before the recession. The current contraction in residential investment is unusually severe, however, as indicated by the atypical decline in national house prices.
One unique characteristic of the current recession is the severe disruption to financial markets. Financial conditions began to deteriorate in August 2007, but became more severe in September 2008. While financial downturns commonly accompany economic downturns, financial markets have continued to function smoothly in previous recessions. This difference has led some commentators to instead compare the current recession to the Great Depression. While the onset of both crises bear some similarities, to date, the effects on the broader economy have little in common. In the first year of the Great Depression, GDP fell by almost 9%, prices fell by 2.5%, and unemployment rose from 3.2% to 8.7% (eventually peaking at 24.9%). The change in GDP, prices, and unemployment in the current recession to date has not been significantly different from other deeper post-war recessions. Most economists blame the severity of the Great Depression on policy errorsânotably, the decision to allow the money supply to contract and thousands of banks to fail. By contrast, policymakers have aggressively intervened to ease monetary policy and provide direct assistance to the financial sector in the current recession
A phronesis antenarrative about the understanding of money and usage of money in more phronetic ways
Storytelling and narrating can be a very efficient and great vessel for changes in our society. One of the experts in storytelling in management being David Boje, developed the notion of antenarrating. A specific type and application of antenarrating being Phronesis antenarrating. Phronesis antenarrating is developed and initiated by Wilfred Berendsen. In this discourse, the insights and fundaments of Phronesis antenarrating are further explained and applied to one of the core issues of current society. Being the misunderstandings of money and the money game and the resulting insanities and problems in our society and universes. Without a sane sensemaking process as reflected in Phronesis Antenarrating, quite a lof of the insanities in our understandings of money and the money system will most probably not be understood to the fullest. This discourse aims at developing a much more complete and sane understanding about money and the money system, and to enable a change in the money game. This should also lead, among a lot of other results, to a solution for financial crisis and for preventing any financial crisis in future. But also it should and probably will lead to a much richer and better society as a whole.Money, Economy, Finance, phronesis, antenarrating, narrating, storytelling, sensemaking
Beyond Argument
Accounts of deep disagreements can generally be categorized as optimistic or pessimistic. Pessimistic interpretations insist that the depth of deep disagreements precludes the possibility of rational resolution altogether, while optimistic variations maintain the contrary. Despite both approachesâ respective positions, they nevertheless often, either explicitly or implicitly, agree on the underlying assumption that argumentation offers the only possible rational resolution to deep disagreements. This paper challenges that idea by, first, diagnosing this argument-only model of arriving at rational resolutions, second, articulating a competing but undertheorized Hegelian-informed approach, and third, attending briefly to some of the challenges of such an approach
Missed Expectations: The Argentine Convertibility
This paper studies the process that led to the Argentine crisis. The crisis is understood as a major disappointment of previous expectations, indicated by widespread insolvencies and abrupt declines in consumption. The analysis concentrates on the sequence of public and private decisions, and the varying perceptions and policy incentives that motivated them. In the nineties Argentina searched for a new growth trend. During much of the period, the behavior of agents seemed to be based on the anticipation that current and future incomes could sustain a value of domestic spending much higher than in the past. The government was motivated to reinforce those expectations, for signaling and political economy reasons. The convertibility monetary regime not only provided a very visible nominal anchor, but also operated as a basic framework for financial contracts, mostly denominated in dollars. Dollar contracting implicitly presumed that the dollar value of incomes would support the servicing of debts. Despite precautionary measures, the reliance on the sustainability of the real exchange rate increased over time. In the late nineties exports stopped rising and the foreign supply of credit tightened. Facing these contraints, the economy contracted and the solvency of the government was put into question. The financial system was vulnerable both in the event of devaluation and that of a (large) deflation-cum-adjustment. As was implicit in its design and management, convertibility proved to have very large exit costs.Economic Crisis, Contracts, Convertibility and Wealth Perceptions
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