
Contents
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5.1 Introduction 5.1 Introduction
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5.2 Gradually Accelerating Deflation 5.2 Gradually Accelerating Deflation
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5.3 Deflation and Nonperforming Loan Problem 5.3 Deflation and Nonperforming Loan Problem
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5.4 Macroeconomic Policy under Large GDP Gap and Zero Interest Rate 5.4 Macroeconomic Policy under Large GDP Gap and Zero Interest Rate
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5.5 Concluding Remarks 5.5 Concluding Remarks
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Appendix Appendix
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References References
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Comment Comment
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Overview Overview
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Implications for Policy Implications for Policy
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Monetary Policy Monetary Policy
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Comment Comment
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References References
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5 Financial Strains and the Zero Lower Bound: The Japanese Experience
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Published:October 2006
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Abstract
This chapter outlines the causes of the Japanese deflation. It evaluates the long-run Phillips curve equation using the gross domestic product (GDP) deflator and the estimated GDP gap. The estimated GDP gap figures and the Phillips curve show that the widening GDP gap resulted in the acceleration of deflation from 1995 to 2003. This indicates that the aggregate-demand shocks were more significant than the aggregate-supply shocks as a cause of persistent deflation in Japan. An increase in the average lending rate is likely to depress the Japanese economy and will aggravate the deflation. As the deflation gradually accelerates, the real interest rates are rising and conventional monetary-policy tools have lost effectiveness. The Gesell tax can be regarded as a substitute for inflation tax on government liabilities. But this tax has a possible negative impact on the credit rating of the Japanese government.
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