The Japanese Economy: Past, Present, and Future

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?