DP7608 Japan's Lost Decade: Does Money have a Role?

Author(s): Fabio Canova, Tobias Menz
Publication Date: December 2009
Keyword(s): deflation, Japan's Lost decade, money, structural model
JEL(s): E31, E32, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7608

We study the contribution of the stock of money to the macroeconomic outcomes of the 1990s in Japan using a small scale structural model. Likelihood-based estimates of the parameters are provided and time stabilities of the structural relationships analyzed. Real balances are statistically important for output and inflation fluctuations and their role has changed over time. Models which give money no role give a distorted representation of the sources of cyclical fluctuations. The severe stagnation and the long deflation are driven by different causes.