Japan’s Long-term Deflation And The Effectiveness Of Monetary Policy

In 1990 s, with the collapse of Japan’s bubble economy, Japan appeared more than 20 years of deflation. This paper is based on the Japan’s long-term deflation, reviewed the performance of more than 20 years of deflation in Japan, to explore the causes of long-term deflation, and to analyze the effectiveness of monetary policy deflation. In the last, to analyze the similarity between China and Japan, from Japan deflationary austerity experience gained enlightenment.The first part is on the basis of the full text of deflation in Japan to review the previous monetary policy effectiveness researches, and summarize the theoretical basis of deflation and monetary policy effectiveness comprehensively: First, according to the concept of international deflation theory to determine causes and economic impact; Secondly, to explore the relative effectiveness of monetary policy. The second part of a comprehensive description of the status of Japan’s long-term deflation: First, combined with the price levels respectively chart, indicators of asset prices, import prices, producer prices and other conditions described in the Japanese deflation since 1991, summary results: since the bubble economy burst, economy grow slowly, although the trend paragraphs recovery but due to various internal and external reasons, the situation is still far from clear; Secondly, to analyze the reasons of Japan’s long-term deflation from the common causes and special causes based on the actual situation: common causes mainly due to economic development, technological advances, global competition and corporate operating costs; special causes mainly due to the decline in asset prices, both inside and outside the business environment changes, the credit market is shrinking, lack of demand, policy mistakes and economic structure, as well as economic policy mistakes and structural problems are the two most important issues currently facing Japan. The third part, to analyze the effectiveness of monetary policy in deflation: first summarize the evolution of Japan’s monetary policy, and finally with the VAR model from both the general and sub-channels to empirically analyze the effectiveness of monetary policy. In the empirical process, selected overnight lending rate, the balance of the reserve base money, loans and bills discounted balance of commercial banks, real GDP in Japan and the Japanese consumer price level six variables, and added a dummy variable m to distinguish different monetary policy period. In the first part of the empirical study, the results of monetary policy in promoting industrial output growth is more pronounces than the effect on the price level increase, and the overnight lending rate to adjust monetary policy significantly increased the deposit reserve ratio of monetary policy effects. But based on the zero interest rate bound and the "liquidity trap" exists, can not come to a conclusion that adjusting the overnight rate target is more effective than increasing the operating reserve balance. In the second part of the empirical research, two channels in terms of stimulate a weak rise in the price level effects. Therefore, the long-term deflation in Japan are summarized in the short-term monetary policy effective but the effect is not obvious, to really solve the problem only to solve the economic structure problems.