Abstract
This paper has presented three questions about the Japanese economic policy and provided answers from the perspective of standard macro theory. The impact of fiscal policy on prices (Question 1) and the macro analysis of MMT (Question 2) are conducted by the mechanism by which government bonds are settled on the monetary base. On the other hand, in the answer to Question 3, public debt is analyzed on the assumption that government bonds and the monetary base are the same. However, government bonds are IOUs that do not have finality while the monetary base issued by the central bank have finality. Therefore, from the viewpoint of the economics of payments, the analysis of public debt by distinguishing between government bonds and the monetary base will be an issue for the future.
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Notes
- 1.
On the other hand, monetary policy is considered effective in case where inflation expectations are sufficiently high, because monetary tightening through interest rates can directly affect credit creation. For example, the facts that the first oil shock (1973–1977) was brought under control in a short period of time and that it had a strong effect on countermeasures against the bubble in the early 1990s suggests that the tightening policy was effective. These experiences suggest an asymmetry exists in the mechanism of monetary policy between in dealing with the cases deflation and inflation.
References
Freeman, Scott. 1996. “The payment system, liquidity, and rediscounting,” American Economic Review, Vol. 86, 1126–38.
Sargent, Thomas. 2013. Rational Expectations and Inflation. 3rd ed. Princeton University Press. Some Unpleasant Monetarist Arithmetic with Neil Wallace.
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Sakai, Y. (2024). Conclusion. In: Deflation and Fiscal Deficits. SpringerBriefs in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-97-0415-6_7
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DOI: https://doi.org/10.1007/978-981-97-0415-6_7
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