The Japanese economy has been stagnating for almost two decades. During this event, Takeo Hoshi will describe the findings of a report that he co-authored with Anil Kashyap of the Booth School of Business at the University of Chicago, the National Bureau of Economic Research (NBER), and the Federal Reserve Bank of Chicago. In the report, Hoshi and Kashyap utilized the neoclassical growth model in order to try to explain the causes of this stagnation and to identify policy choices that might help restore growth. Their focus was intentionally on longer-term issues, rather than the immediate challenges that are associated with the fallout from the global recession.
Looking at financial globalization and the collapse of the fixed exchange rate regime they found that by the end of the 1970s Japan could not rely on an undervalued currency to boost its exports. It had to rearrange its production system and other economic institutions to cope with globalization to reduce its reliance on external demand.
Japan's population structure was shifting and becoming increasingly elderly. Aging meant slower growth of the labor force. Declining fertility combined with aging eventually reduced the domestic saving that supported economic expansion during the rapid economic growth period.
Finally, monetary and fiscal policy performed poorly. The Bank of Japan consistently undershot its inflation objective. The government pursued massive fiscal stimulus during the 1990s and 2000s, so much so that Japan went from having the best debt position amongst advanced economies to the worst.
Hoshi is a Pacific Economic Cooperation Professor in international economic relations at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego. He is also a research associate at the Tokyo Center for Economic Research, and is on the board of directors for Union Bank. His major research area is the study of the financial aspects of the Japanese economy, especially corporate finance and governance.
He is a recipient of the 2011 Reischauer International Education award, the 2006 Enjoji Jiro Memorial Prize, and the 2005 JEA-Nakahara Prize. Among his many publications isCorporate Financing and Governance in Japan: The Road to the Future(MIT Press, 2001), which received the Nikkei Award for the Best Economics Books in 2002.
As a Pacific Economic Cooperation Professor specializing in international economic relations at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego, I have dedicated my career to the in-depth study of the financial aspects of the Japanese economy, with a particular focus on corporate finance and governance. My name is Takeo Hoshi, and my extensive expertise is underscored by numerous accolades, including the prestigious 2011 Reischauer International Education Award, the 2006 Enjoji Jiro Memorial Prize, and the 2005 JEA-Nakahara Prize.
One of my notable contributions to the field is the co-authorship, alongside Anil Kashyap of the Booth School of Business at the University of Chicago, of a significant report that delves into the stagnation of the Japanese economy over the past two decades. This report, conducted in collaboration with esteemed institutions such as the National Bureau of Economic Research (NBER) and the Federal Reserve Bank of Chicago, applies the neoclassical growth model to unravel the underlying causes of Japan's economic stagnation and to propose potential policy choices for rejuvenating growth.
In this comprehensive study, we deliberately directed our attention toward longer-term issues, steering away from the immediate challenges posed by the global recession fallout. Our investigation into financial globalization and the collapse of the fixed exchange rate regime revealed a pivotal shift by the end of the 1970s. Japan found itself unable to rely on an undervalued currency to stimulate exports, necessitating a restructuring of its production system and economic institutions to adapt to globalization and reduce dependence on external demand.
Furthermore, our analysis uncovered a demographic shift in Japan's population structure, with an increasingly elderly population leading to slower growth in the labor force. The combination of declining fertility and an aging demographic ultimately resulted in a reduction of domestic saving, which had been a critical driver of economic expansion during the earlier period of rapid growth.
Our findings also pointed to suboptimal performance in monetary and fiscal policies. The Bank of Japan consistently fell short of its inflation objectives, while the government pursued massive fiscal stimulus during the 1990s and 2000s. This excessive fiscal intervention led Japan to transition from having the best debt position among advanced economies to the worst.
In conclusion, my research, as reflected in this collaborative report with Anil Kashyap, sheds light on the intricate web of factors contributing to Japan's prolonged economic stagnation. By leveraging the neoclassical growth model and drawing on my extensive background in studying the financial dimensions of the Japanese economy, our aim is to provide valuable insights that may inform policy choices to revitalize Japan's economic prospects.
