... ABENOMICS Japan, as a country, has been the prime example of what most economists refer to as the East Asian Miracle. A small island country centered on isolationist policies during the early 19th century, Japan first opened its doors to economic world trade with the arrival of Commodore Perry and his “Black Ships.”(US Navy Museum 2014) Although small in size, and low in resources, Japan saw the power and might of its Western contemporaries and aimed to follow in their footsteps. Near the end of the 20th Century, Japan was officially recognized as an economic superpower throughout the world. However, growth never lasts forever and by the 1990s, Japan’s economy had come to a grinding halt due to a massive collapse in both the real estate and stock markets of the Japanese economy and remains in a recession that has lasted till now. As Japan looked to face another year of stagnant growth of the economy, Japan’s Prime Minister, Shinzo Abe, decided enough was enough. With the assistance of the new governor of the Bank of Japan, Shinzo Abe embarked on a radical economic plan that focused on three arrows of design. The arrows depict the strategy of Shinzo Abe’s “Abenomics” program in which it focuses on fiscal stimulus, monetary easing, and structural reforms. (International Monetary Fund 2013) It is almost near the two year mark since the implementation of Shinzo Abe’s “Abenomics” program has begun. Although typically, economic effects of governmental policies require years to...
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... 4 IV. THE LOST DECADE 5 V. FISCAL POLICY 8 VI. MONETARY POLICY 9 VII. COMPARISON BETWEEN JAPAN AND THE U.S. 12 VIII. EXHIBITS 15 A. CHART 1 – GENERAL GOVERNMENT GROSS DEBT AS % OF GDP - COMPARISON 15 B. CHART 2 – NOMINAL GDP OF JAPAN - TREND 16 C. CHART 3 – REAL GDP OF JAPAN - TREND 17 D. CHART 4 – PER CAPITA GDP OF JAPAN - TREND 18 F. CHART 5 – INFLATION RATE OF JAPAN 19 G. CHART 6 – DISCOUNT AND LOAN RATES FROM BANK OF JAPAN 20 H. CHART 7 – UNEMPLOYMENT RATE – JAPAN 21 I. CHART 8 – NIKKEI 225 INDEX 21 IX. REFERENCES 22 I. Executive Summary Japan experienced a period of exceptional economic growth becoming an economic powerhouse by the 1980s. However, Japan was not able to carry this economic prowess forward into the 21st century. The Japanese economy lost an entire decade in the 1990s due to economic stagnation -- one that was characterized by deflation, three recessions and a slowdown in economic growth. A stock market crash followed along with more than a three-fourths decline in real-estate prices which plagued Japan’s economy causing huge destruction in wealth, leaving both corporations and households with large amounts of debt. This period famously came to be known as the "lost decade". The Japanese government watched as GDP growth slowed down and inflation fell at a rapid pace causing them to enact several fiscal stimulus packages in an attempt to revive the economy. At the same time, the Bank of Japan was continually lowering interest rates...
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...Subject: ECO 550 Professor Name: DR. Yasmeen Student Name: Sayed Rohullah Week 3: Check your understanding 1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned ride snowmobiles. The model specifies that the S vary jointly with disposable personal income Y and the population between ages 15 and 40,Z, and inversely with the price of the snowmobiles P. Based on the past data, the best estimate of this relationship is S= K *YZ/P Where k has been estimated (with the pst data) to equal 100. If Y=$11,000, Z= $1,200, and P=$20,000 a. What value would you predict for S? Answer: The given function is S=K*YZ/P k=100 Y=$11,000 Z=$1,200 P=$20,000 S=100(11000*1200)/20000= $66,000 Problem 5 5. A firm experienced the demand shown in the following table. a. Fill in the table by preparing forecasts based on a five-year moving average, a three-year moving average, and exponential smoothing (with a w = 0.9 and a w = 0.3). The exponential smoothing forecasts may be begun by assuming Ŷt+1 = Yt. b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE criterion. c. Which forecast would you have used for 2010? Why? 5- year 3-Year Exponential Exponential Actual Moving Moving Smoothing Smoothing Year Demand Average Acverage (W= 0.9) 2000 800 xxxx xxxx xxxx Xxxx 2001 925 xxxx xxxx 687.5 762.5 2002 900 xxxx Xxxx 947.5 932.5 2003 1025...
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... 3 1. Introduction 4 2.1. Expansionary Monetary Policy 5 2.2. Contractionary Monetary Policy 6 2. Overview of the United States Monetary Policy 7 2.1 Overview of Recent United States Monetary Policy 8 3. Recent (2011) Direction of Monetary Policy 10 4. Market Reaction to Monetary Policy 12 5. Conclusion 15 6. Reference List 16 1.0 Introduction In macroeconomics, monetary policy is an importance tool to Central Bank and is a policy set by the members of Central Bank. It is an economic strategy chosen by government that authorizes Central Bank to regulate and influence the economic activity by controlling the monetary base flow into national economy. The goals of monetary policy are to promote growth of the economy, stability of prices and reduce unemployment rate. Monetary policy can be classified into two categories, namely expansionary monetary policy and contractionary monetary policy. Although, the objective for the two policies is the same, they adopt different approaches in reaching this objective. Expansionary monetary policy is used when a country is facing a recession in the economy business cycle, whereby it increases the money supply in economy system to meet its objectives. In contrast, where there is a peak in the economy business cycle, central bank will use contractionary monetary policy to reduce the money supply in economy system so as to retard the inflation...
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...McKinsey Global Institute November 2013 QE and ultra-low interest rates: Distributional effects and risks Discussion paper The McKinsey Global Institute The McKinsey Global Institute (MGI), the business and economics research arm of McKinsey & Company, was established in 1990 to develop a deeper understanding of the evolving global economy. Our goal is to provide leaders in the commercial, public, and social sectors with facts and insights on which to base management and policy decisions. MGI research combines the disciplines of economics and management, employing the analytical tools of economics with the insights of business leaders. Our “micro-to-macro” methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy. MGI’s in-depth reports have covered more than 20 countries and 30 industries. Current research focuses on five themes: productivity and growth; the evolution of global financial markets; the economic impact of technology and innovation; urbanization and infrastructure; and natural resources. Recent research covers job creation, infrastructure productivity, a new wave of disruptive technologies, trends in resource markets, and the shifting global company landscape. MGI is led by McKinsey & Company directors Richard Dobbs, James Manyika, and Jonathan Woetzel. Yougang Chen, Michael Chui, Susan Lund, and Jaana Remes serve as MGI principals. Project teams are led by a group...
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...Eco550 Week 3 Chapter 5 1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned ride snowmobiles. The model specifies that the S vary jointly with disposable personal income Y and the population between ages 15 and 40,Z, and inversely with the price of the snowmobiles P. Based on the past data, the best estimate of this relationship is S= K *YZ/P where k has been estimated (with the pst data) to equal 100. If Y=$11,000, Z= $1,200, and P=$20,000 a) what value would you predict for S? Answer: The given function is S=K*YZ/P at the given values of; k=100 Y=$11,000 Z=$1,200 P=$20,000 the value of S is: S=100(11000*1200)/20000= $66,000 so there would be a sales of $66,000 at above given values. 5. A firm experienced the demand shown in the following table. a. Fill in the table by preparing forecasts based on a five-year moving average, a three-year moving average, and exponential smoothing (with a w = 0.9 and a w = 0.3). The exponential smoothing forecasts may be begun by assuming Ŷt+1 = Yt. b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE criterion. c. Which forecast would you have used for 2010? Why? 5- year 3-Year Exponential Exponential Actual Moving Moving Smoothing Smoothing Year Demand Average Acverage (W= 0.9 ) (W= 0.3 ) 2000 800 xxxx xxxx xxxx Xxxx 2001 925 xxxx xxxx 687.5 762.5 2002 900 xxxx Xxxx...
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...Economic and Monetary Policy Auditing and Business Concepts Submitted by: Edmore H. Delaney Perspective of the Economic and Monetary Policy Framework of the Republic of Liberia This paper is intended to capture the framework of the economy and monetary policy of the Republic of Liberia and the effectiveness it pursues in the implementation its institutional framework. The economy continues to be plagued by a multiplicity of social, financial and economic challenges which has seen production level of the sector far below prewar levels (Findlay & O’Rourke, 2007). Consequently, the government’s approach has been directed towards vigorous pursuing money and credit supply to stabilize the economy. In order for Liberia to implement a sound economic and monetary policy, the government needs to ensure that a monetary aggregate is achievable. The Central Bank of Liberia in 2005, initiated a program to ensure stability of money demand functions where interest rate and income will significantly have impact on the money demand function (Matthew, 2009). The real gross domestic product (GDP) growth in 2014, which was initially projected at 5.8%, is estimated to decline to 2.5% or less by the end of the year. According to the Ministry of Finance and Economic Planning due to the absence of EVD, growth projections in 2014 reflected a weaker economic outturn as compared to the previous year (2013). This growth was driven largely by the expansion...
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...salient feature of world history today. The Chinese leader Deng Xiaoping who initiated and directed economic reform from a planned to a market economy understood the importance of globalization and adopted what he called an “open-door policy” as an essential part of the reform program. The term globalization refers to the crossing of national boundaries. It means the flow of goods, capital, information/technology and people across national borders. China practiced globalization in the Han dynasty (206BC-220AD) when trade took place between the Han Chinese and neighboring people in the North-west through the Silk Route. During the Tang dynasty (618-901) trade flourished and the Silk Route expanded as Chinese traded with the Romans. However, in the Qing Dynasty and in the period of the PRC up to Deng Xiaoping’s open-door policy China tried to close its doors and resisted globalization. I will survey the accomplishments of globalization for China’s economic development and clarify some controversial issues concerning globalization. 1. Foreign Trade. First consider foreign trade or the flow of goods across national borders. Since 1978 China has encouraged free trade and abolished trade restrictions step by step. The government has changed its policy from the administration of foreign trade by the Ministry of Foreign Trade, to...
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...JAPANESE MONETARY POLICY AND THE DEFLATION PROBLEM Takatoshi Ito Frederic S. Mishkin Working Paper 10878 http://www.nber.org/papers/w10878 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2004 This paper is written for the NBER 15th East Asian Seminar on Economics, June 25-27, 2004. The authors are grateful to Takeshi Kudo and Emilia Simeonova for their excellent research assistance. We also thank our discussants Ken Kuttner, and Kazuo Ueda, Kunio Okina and participants at seminars at the Bank of Japan, and the East Asian Seminar on Economics. Any views expressed in this paper are the views of the authors only and not the University of Tokyo, Columbia University or the National Bureau of Economic Research. The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of Economic Research. © 2004 by Takatoshi Ito and Frederic S. Mishkin. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Two Decades of Japanese Monetary Policy and the Deflation Problem Takatoshi Ito and Frederic S. Mishkin NBER Working Paper No. 10878 October 2004 JEL No. E42, E52, E58 ABSTRACT This paper reviews Japanese monetary policy over the last two decades with an emphasis on the experience of deflation from the mid-1990s. The paper is quite critical of the conduct of monetary policy, particularly...
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...pegs * Setting the currency equal to a specified value * What factors determine exchange rates (pegging and managed floats) * High interest rates Appreciation & recession – increased demand & price * Stronger currency favors importers (trade surplus) * Low interest ratesDepreciation & Expansion * Weaker currency favors exporters (trade deficit) * The role of the IMF * Make emergency loans to countries with balance of payment problems * Ensures stability of national monetary system * Fiscal Policy * Government changing taxes and/or government spending in effort to increase or decrease business activity * Expansionary FP leads to increased spending but downside is budget deficits * Contractionary FPleads to budget surpluses or smaller deficits * AKA Austerity (attempt to shrink growing deficits) * Monetary Policy * Central Banks changing the MS to increase or decrease the availability of credit in an effort to increase or decrease business activity * Primary tool is Open Market Operations * Buying and Selling short term securities * Dual Mandate Inflation & Unemployment * ECB does not have a dual mandate like the Fed THE EUROPEAN UNION (EU) * Explain the purpose of an “economy” from a European perspective * Equity & Leisure more important than consumption * Social goals more...
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...Japan economy remains mired in recession despite attempts by Government to stimulate economic growth over years. The Gross Domestic Product (GDP) growth is not as great as it was before asset-price bubble. The monetary measures implemented by Japan new government to solves two-decades of sluggish growth has been brought up to G20 meeting at Moscow on February 2013, to determine on its compatibility with G20 agreement. It has been endorsed by G20 communities for its important role in global economy. Economist anticipated recovery would be slow as deflation has raged in Japan for near to two-decades. This paper examines the deflation issues in Japan; to shed some lights on the causes of deflation and several issues arises from prolonged deflation. Lastly, new stimulus package to expand economy will be highlighted. The effectiveness and potential side effects of policy will be discussed. Deflation, which was not a serious monetary issue has entrenched and gained attention globally for its prolonged effects in Japan. (Bernanke 2003). According to Blink and Dorton (2007), deflation occurs when average price level has generally declined. Deflation refers to situation where inflation rate falls below zero zones. It is categorized into two board explanation. “Good” deflation finds it source from improvement on supply side of economy. As figure (1) refers, increased Aggregate Supply (AS) will increase the real output and leads to decline in price level. “Bad” deflation results from...
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...Japan in the global economy, we can divide the period in four phases. First – War reconstruction Second – high growth Third – stable economy growth Forth – “bubble” After World War II, the Japanese economy struggled to recover until it received a boost from the so-called special demands from the Korean War. To improve the production capacity of the economy, the Japanese government adopted the priority production system, focusing on the production of steel and coal, expecting spill over effects on other sectors of the economy. Combined with the three major structural reforms - that is, the dissolution of "Zaibatsu," or financial conglomerates, reform of agricultural lands, and labor reform - these policies paved the way for the high economic growth that followed. In 1956, the economic white paper declared: "Japan is no longer in the post-war period." During the period from 1956 to 1972, the economy grew on average 9.3 percent in real terms. These years are called the "high growth period." New technologies as well as new products required high investment. Dubbed as the "Consumption Revolution," durable consumer goods such as televisions, washing machines, refrigerators, cars, and air-conditioners spread rapidly. Exports also increased at faster paces, thanks to the modernization of production equipment and cost reduction by new technologies. Nonetheless, the rise in imports out-paced exports, leading to a negative contribution of net exports on average at minus 0.2%...
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...QUANTITATIVE EASING: A RATIONALE AND SOME EVIDENCE FROM JAPAN This paper was prepared for the NBER International Seminar on Macroeconomics 2009. Volker Wieland thanks the European Central Bank for support as Duisenberg Research Fellow while the initial presentation for the ISOM conference in June 2009 in Cyprus was prepared. The help of Alberto Musso from the European Central Bank in collecting data on Japan is gratefully acknowledged. Helpful comments by conference participants, and in particular by Huw Pill, Vincent Reinhart, Frank Smets, Christian Thimann and Athanasios Orphanides were highly appreciated. The usual disclaimer applies. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2009 by Volker Wieland. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Quantitative Easing: A Rationale and Some Evidence from Japan Volker Wieland NBER Working Paper No. 15565 December 2009 JEL No. E31,E52,E58,E61 ABSTRACT This paper reviews the rationale for quantitative easing when central bank policy rates reach near zero levels in light of recent announcements...
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...decade. Following the asset price bubble burst in the 1990s after the Bank of Japan eased monetary policy to sustain growth, Japan really could not catch up with the pace of the economic growth in economies world over. Individuals and businesses have been sceptical about consumption and have thus preferred to pay off debt rather than consume more and invest. The low growth in consumption spending and investments are one of the major reasons of concern for the Japanese economy. The government to a certain extent increased its spending to revive growth but could do it to a limited extent due to huge government debt which currently stands at about 240% of the GDP of the country. This period of low consumption and investments led Japan into a state of deflation which led to a catastrophic fall in the future prospects and thus the investments in the economy. The BoJ and the government allowed the currency to depreciate with respect to the dollar to boost export income and thereby lead to a current account surplus but attempts failed due to lower export volumes owing to the low business investments. The current target for the economy is to reach a stage of 2% real GDP growth with a moderate 2% inflation rate. The targets are slowly being reached but owing to the huge debt and the availability of easy money, the prospects of the economy are somehow shaky. Abenomics The term refers to the economic policies of the Japanese Prime Minister Shinzo Abe to revive the Japanese economy to...
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...TABLE OF CONTENTS ABSTRACT…………………………………………………………. 2 ACKNOWLEDGMENT……………………………………………... 3 I. Introduction 1. Background of the study …………………………………. 4 2. Statement of Problem……………………………………… 5 3. Hypothesis………………………………………………… 6 4. Research objective………………………………………… 6 5. Research Question………………………………………… 6 6. Significance of Study……………………………………… 7 7. Scope and Limitation of the Study………………………… 7 8. Research Methodology……………………………………. 7 II. Literature Review……………………………………………… 8-9 III. Discussion III.1. Interest rate versus exchange rate in Bank deposit……… 10 III.1.1 Appreciate US Dollar in Bank Deposit factor…10-11 III.1.2 Depreciate US Dollar in Bank Deposit factor….. 11 III.2. Interest rate affected in Stock market…………………... 11 III.2.1 Depreciate US Dollar in Stock Market………..11-12 III.2.2 Appreciate US Dollar in Stock Market..................12 IV. Conclusion……………………………………………………… 13 V. References…………………………………………………….14-15 Abstract In this paper, I use high frequency data to investigate the extent to which interest rate changes originated in the United States by the Reserve Federal Fund. More specifically, I am interested in understanding in effects of changes in the Federal Reserve Fund’s interest rates on differential between (short term) local currency interest rates. I also investigate how interest rate influences to the foreign exchange market when Federal set the interest rate. The result indicates that Federal Reserve’s rate...
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