Three years ago at this same conference, I was given an opportunity to talk about Japan’s monetary policy in the years when asset price bubbles expanded.1 Today, I would like mainly to review monetary policy in the following phase when the bubbles burst, for an asset price swing is the “changing economic environment” most relevant to us. Incidentally, we are now in the third phase when the econ...

This paper studies a New Keynesian model of two-country world with zero lower bound (ZLB) constraint for nominal interest rates. A floating exchange rate regime is assumed. The presence the ZLB generates multiple equilibria. two countries can experience recurrent liquidity traps induced by self-fulfilling expectation that future inflation will be low. These “expectations-driven” synchronized or...

I examine global dynamics in a monetary model with overlapping generations of finite-horizon agents and binding lower bound on nominal interest rates. Debt targeting rules exacerbate the possibility self-fulfilling liquidity traps, for expect austerity following deflationary slumps. Conversely, activist but sustainable fiscal policy regimes - implementing intertemporally balanced tax cuts and/o...

The prolonged recession in recent Japan continues much longer than a decade. One observes exciting policy-related discussions over the diagnosis and the effective prescriptions to the problem. Gradually, academic economists have been accumulating scientific investigations into the nature and the causes of this "great" recession. Economic theory faces a test of its applicability in the light of ...