Since the collapse of the bubble economy in the early 1990s, the Japanese economy has been facing a major crossroad. Stimulated by the collapse, firms attempted to reduce debts, while the savings rates of households increased rapidly due to the uncertainty regarding future income. Consequently, a surplus savings trend continued through the 1990s, and the economy stagnated. Especially during autumn 1997, the gradual increase of bad debts caused a financial crisis, which grew into a credit crunch. In response, the government used fiscal activity to fuel economic recovery, while allocating public funds to the banking sector. In addition, the Bank of Japan lowered short-term interest rates to zero, the so-called “zero-interest rate policy” and actively sought to increase liquidity.
Due in part to the effects of these policies, economic conditions began to improve starting in 2000. However, many problems, such as excessive corporate debt, bad loans carried by banks, and increases in national bond issues, remain unresolved. Under such conditions, along with empirical research of economic changes in and after the 1990s, concrete suggestions for dealing with the following points are required.
1. More analyses are needed on the mechanisms by which fluctuations in land and stock prices, and other asset prices, affect the real economy.
2. Policies should be formulated to respond to scenarios in which large-scale losses create demand shocks. For example, the effectiveness of tax reductions and increases in public investments, and other fiscal stimuli, or the impact of financial deregulation in situations where financial intermediation has become paralyzed, call for empirical research based on the experiences of the Japanese economy during the 1990s.
3. The largest issue facing Japan's economy, the aging society, demands an examination of how to design an optimal government senior pension program and other social security policies. Further, in dealing with the labor shortage, the extent to which the rapid evolution in the IT (informational technology) field can help improve labor productivity, and what policy measures are needed to diffuse the appropriate IT, should be analyzed.
This research unit covers the following topics: (1) empirical analysis of the monetary aspects of the Japanese economy; (2) international comparison of central banks, financial systems, and financial developments; (3) theoretical and empirical analysis of the Japanese monetary policy; and (4) theoretical and empirical research on international finance and money. Specifically, recent developments in the domestic and international financial markets suggest the importance of research on the following topics.
1. The Japanese economy experienced a serious banking crisis in the late 1990s. Banks and securities companies, including large-scale ones, failed, and those failures had a serious damage on the real side of the economy through credit crunch. This experience suggests the importance of research on topics such as: the mechanism of banking crisis; the role of market liquidity; the LLR (Lender of Last Resort) function; and the design of appropriate prudential regulation on banks and other financial institutions.
2. The “zero interest rate policy” adopted by the Bank of Japan in the late 1990s tells us that liquidity trap is a real concern to central bankers. How to escape from a liquidity trap, as well as how to avoid a trap are now important questions to be addressed by researchers in the field of monetary policy.
3. A series of currency and financial crises in emerging economies suggests various important topics to be studied, including the mechanism of contagion, the design of appropriate institutional frameworks, and the possibility of international policy cooperation in the event of a crisis.
4. A new monetary framework in the East Asian economies is an important research topic. For example, it is important to discuss how to create anominal anchor that should replace the role of the US dollar under the fixed exchange rate regime. Widespread use of the yen, or internationalization of the yen, in the East Asian economies is also an important topic to be investigated empirically.
The post-1945 economic regime composed of the BrettonWoods system, GATT, andWorld Bank, constructed mainly by the U.S., was successful beyond expectations in supporting the economic development of economies in the West. However, the system is now facing major changes such as: the globalization of corporate activity; the entry of Russia and China into the international market with the end of the Cold War; the decrease in the percentage of the American economic activity within the global economy; the increasing number of nation-states joined by free trade agreements; the expansion of trade in services; and others. Moreover, Japanís international economic relations is changing rapidly due to the aging population, the rapid increase of domestic and overseas direct investments, and the industrialization of northeast Asia. The Unit conducts theoretical and empirical research on the issues below in order to generate suggestions regarding an optimal international economic regime, and the international economic policies Japan should take.
1. The influence of the globalization of corporate activity on the Japanese economy.
2. The impact of the aging population on trade structure and balance of payments via its effects of savings rates and factor endowment ratios.
3. The pros and cons of free trade agreements.
4. Trade in services and the WTO.
5. Transitional economies and the international economic regime.
6. The links between economic growth and changes in the structure of comparative advantage.
This research unit studies a foundation of normative economic theory based on the non-welfaristic approach which is beyond the traditional framework of welfaristic normative economics. Through this study, we will provide theoretical foundations to make more concrete suggestions for social and economic policies which involve the important issues like (1) what is a subject for social compensation in social security, (2) what is an impartial social decision procedure in selecting new institutions, and (3) how to accommodate the trade off involved in implementation of new policies between the individual and group rights and the social welfare maximization. In particular, we follow the following research project in this academic year:
1. On social decision procedure for assigning individual and group rights,
2. On social decision procedure for choosing fair allocation rules from the viewpoint of pure procedural justice,
3. Microfoundation of constructing social security systems from the viewpoint of responsibility and compensation,
4. Analysis of GATT/WTO mechanisms,
5. On efficiency and equality of opportunity in cost sharing problems, On Japanese industrial policy, competitive policy, and commercial policy.
1. International trade and foreign direct investment in Asia
2. Innovation and total factor productivity: An empirical analysis based on industry- and firm-level data
3. International comparison of productivity
4. Real wage rates in Japan and Europe from 900 to 1700 AD
1. Corporate finance: SME financing, evaluations of government financing policies
2. Transaction networks among firms: dynamics, effects on economic activities
WU, Harry Xiaoying
1. Accounting for China's growth and productivity performance in both central planning and reform periods.
2. International comparisons using purchasing power parities.
3. Analysis of the role of government in economic development.
4. The Chinese economy since the mid 1800s: initial conditions, structural changes, factor costs and trade.
1. Analytical foundation for non-welfarist normative economics: Social choice based on non-welfarist normative principles and mechanism design
2. Axiomatic approach to the exploitation of labor: Characterizing market economies in terms of labor exploitation and deprivation
3. Game theoretic analysis of political competition with multi-dimensional policy spaces