The Role of Central Bank in the Recession in the Case of Japan's Recession

Japan's economy is expanding and expected to continue expanding moderately, according to Monthly Report of Recent Economic and Financial Developments released by the Bank of Japan in July 2007.The BOJ declared the change of policy stance at the Monetary Policy Meeting held on July 14, 2006. The BOJ had to tackle a recession which the Japanese economy had not experienced before. The economy was on the verge of financial panic, especially in 1997 and 1998, when major financial institutions had failed. It reminded us of the recurrence of the Great Depression in the 1930s. The article will clarify how the Japanese economy fell into a serious depression with a reflection on the role of the BOJ in the emergence of prolonged depression. We will also estimate the interest rate elasticity of money demand in order to identify whether or not the Japanese economy was in a liquidity trap in the prolonged recession. We will use the EGARCH model to quantify the financial anxieties. The conclusion will suggest that the BOJ should have paid more attention to the behavior of money stock at the early stage of depression.bubble, money stock, financial anxieties, liquidity trap

The Recent Monetary Policy and Money Demand in Japan

After the burst of the bubble, the Japanese economy has experienced a hard recession which Japan has never experienced after the war. The Japanese government conducted the huge public investment without success. The Bank of Japan also performed the low interest policy to boost the economy. However, Japanese economy got worse after 1997 when the leading financial institutions suddenly collapsed. The Japanese economy had plunged into the deflationary spiral. The BOJ took the so-called zero interest policy after 1999 to fight against the deflationary pressure. Furthermore, it started the qualitative easing policy by increasing the outright purchase of government bond after March 2001. The policy stands on the idea that money stock has the positive effect on the economy. The money demand has to be stable for the policy to succeed. The bank of Japan (2003) recently reported that the long-run equilibrium relationship between money stock and real economic activity can no longer be detected, though such relationship could be found before 1997. In this paper we quantify that money stock has a positive relationship with real economic activity, and money demand is still stable. We found one cointegration in the cointegration test between money stock, real GDP, and share price in the period from 1981 through 1997. However the cointegration has broken out when the sample period was extended beyond 1997, as the BOJ (2003) suggests. We performed the cointegration test again by comprising a new variable: financial anxiety and found one cointegration. Dynamic money demand function was estimated with an error correction term. The result was almost statistically satisfactory, suggesting the stability of money demand.cointegration; financial anxiety; stability of money demand

Lessons from Japan's prolonged Recession

Japan’s economy experienced prolonged recession which had never been observed before. This paper focus on the events in Japan’s economy since 1985, tracing how the asset prices inflated and collapsed, and how the Bank of Japan responded to the deteriorating economy. We will learn from the Japan’s experience that it becomes more difficult for monetary policy to reactivate the economy, once it falls into the deflation. We will conclude that the BOJ should not have ignored the role of money stock by showing the statistical evidence of the relationship between money stock and the economic activity. Keywords: bubble, deflation, money stock, financial anxiety

Monetary Policy under the Zero Lower Bound Interest : Japan\u27s Experience

This paper quantifies the effect of non-traditional monetary easing at the zero lower bound on interest rate, so called “quantitative easing monetary policy” which the BOJ adopted from March 2001 through June 2006, by changing operating target for money market from the uncollateralized call rate to the outstanding current account balances held by financial institutes at the BOJ. The paper confirms that the monetary policy has contributed to the recovery of the prolonged deflation.First we estimate a minimal VAR model, which consists of the current account balances at the BOJ (CABs) as a policy variable, real GDP, and inflation rate. Next we decompose money stock into transaction money and precautionary money to evaluate the transmission mechanism of the effect of CABs on the real economy by taking into account the financial anxiety. We have found a quantitative easing shock firstly increases transaction money and then raises output and price, which dispels the anxiety. We also confirm that a liquidity trap did not exist during the period of quantitative easing monetary policy

「批判的思考力」育成をめざした体育・スポーツ哲学の授業に関する研究：具体的事例（5 打席連続敬遠）から

The purpose of this research is to consider ways to encourage critical thinking in Philosophy of Physical Education and Sports classes. Introductory classes for students specializing in sports education were observed. Students reviewed a specific example in which a batter was given an intentional walk five consecutive times and they aimed to consider the case critically.　Right after watching the case on screen, students noted whether they agreed with such a practice or not. Then, 3 points were explained and students noted their opinion again.　The 3 points were;　(1) position of activities of sports clubs　(2) regarding it as a competitive sport　(3) regarding it as part of education (Physical Education)　In 4 years, 8 classes were held and 1,020 students participated in them. 118 of them (11.5%) changed their opinion after listening to the explanation. It must prove that those students were able to analyse even their own initial judgement critically and perceive it differently.　Furthermore, the following became clear from comments written after the classes:　By watching and using a specific example on screen, there is a possibility to eliminate/reduce negative images some people hold towards sports(P.E.) philosophy or philosophy. It also increases the possibility to engage students positively by introducing active learning of actually thinking and writing down their opinions

Monetary Policy in the Deflationary Economy; Japan\u27s Experience

The paper addresses the effectiveness of monetary policy in the prolonged Japan’s recession. A large amount of research has been aimed at the topic. A majority of the previous paper denies the effectiveness of monetary policy in the deflation. The Bank of Japan always insists that monetary policy does not work well especially in the severe deflation. However the role of money should not be ignored when we considers M. Friedman’s word “Both inflation and deflation are monetary phenomenon.”The paper will apply the Vector Error Correction Model into Japan’s economy over the period from 1980q1 through 2009q1. The model examines whether or not there exists a long-run equilibrium relationship between the monetary base and economic activity, paying a close attention to the precautionary money demand caused by the financial anxiety. People are expected to increase the precautionary demand, facing the financial crisis. The survey data is used to quantify the financial anxieties. The result shows that the cointegration property among monetary base and economic acclivity still hold even after Japan’s economy fallen into the deflation in 1997, when people’s financial anxiety is taken into account.The paper also analyzes the existence of the liquidity trap by the same model. The data analysis demonstrates the non-existence of the trap. Thus, we conclude that monetary policy is still effective and the BOJ’s role is crucially important to combat against the prolonged recession