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The Japanese Economy: Past, Present, and Future

The Japanese Economy: Past, Present, and Future. Prof. Edward C. Prescott, Discussions by Koichi Hamada. Introduction. Prescott on the time inconsistency: possibility of reneging the promise. Prescott on the real business cycle.

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The Japanese Economy: Past, Present, and Future

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  1. The Japanese Economy: Past, Present, and Future Prof. Edward C. Prescott, Discussions by Koichi Hamada

  2. Introduction • Prescott on the time inconsistency: possibility of reneging the promise. • Prescott on the real business cycle. • Fumio Hayashi and Prescott applies to the lost decade of growth 1992--2002

  3. Real Business Cycles • A simple real growth theory can explain the stagnation of the Japanese economy quite well. • Key words: Hours of work, and productivity.

  4. Questions from a non-convert to RBC • Did TFP decline so much (Motohashi- Jorgenson)? • Was employment on the supply curve of labor? Did not the rigid wages matter at all? • Waiting for the good time type of labor supply behavior appears artificial. • Without the over-killing monetary policy during 1990-92, could credit crises take place?

  5. Purely nominal phenomenon can influence the real economy • The Plaza Accord in 1985. The operation was purely monetary!? • Terms of Trade and the real exchange rate did change and did not return to the initial level until recently. • The exposure of the Japanese economy to the outside world is not so great, but the 50 percent increase in real exchange rate should matter. Like plunging into a hot “onsen.” • Monetary factors do matter.

  6. So far some disagreements, now agreements follow. • Cave at • Neglect of population growth and aging. • More than a mere decline in growth rate. • Immigration policy is to be carefully thought out.

  7. Futures of the Japanese Economy • Depends on the productivity. • Koizumi-Takenaka line of reform. Implementer and the brain. • To disrobe the unwilling bureaucrats. • Postal Savings reform. Symbolic.

  8. I am also pessimistic about • Human capital policy. • Aging population • Education --- nationalism is not enough. I feel the competition even now.

  9. Can Japan enjoy the luxury? • Can the Japanese afford to continue enjoying lukewarm welfare state --- economizing military expenditure, worrying about income inequality, keeping homogeneity of the nation, and respecting the elderly?

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