ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Japanese Economic Recovery and the Macroeconomic Policy Mix

This paper reviews the macroeconomic policy mix in Japan over the past 15 years as it grappled with slow economic growth and deflation in the economy. It argues that the repeated recessions and the enormous difficulties in economic recovery are not unrelated to the macroeconomic policies adopted by Japan. Countercyclical economic policies have largely been a let-down. Given the near liquidity trap situation in the economy and the doctrinaire methods of Japanese monetary authorities, not much could be expected from monetary policy. Expansionary fiscal policy could have provided the necessary demand push if only the fiscal stimulus had been large enough and the nature of public expenditure such as to induce a significantly high multiplier effect in the economy. This obviously was not the case. In the past few years, fiscal policy has been clearly contractionary despite the continuing demand deficit in the economy.

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