Japan's Lost Decade: What Have We Learned and Where are We Heading?

18 Pages Posted: 5 Nov 2007


The lost decade has provided us a number of lessons. One of them is the limit of standard macroeconomics. This paper attempts to show that uncertainty plays a much more important role in the macroeconomy than most economists recognize. Once the economy is caught in an uncertainty trap, the effectiveness of standard policy necessarily weakens. The zero-interest rate may well be a consequence of an uncertainty trap. In fact, whether or not the economy is caught in such an uncertainty trap distinguishes 'depression' from the normal cyclical 'recession'. The significance of demand-creating innovation is another point I emphasize in this paper. In my view, a lack of demand-creating innovation is a part of explanation of the lost decade. At the same time, this paper offers prospects for the future of the Japanese economy.

Suggested Citation

Yoshikawa, Hiroshi, Japan's Lost Decade: What Have We Learned and Where are We Heading?. Asian Economic Policy Review, Vol. 2, No. 2, pp. 186-203, December 2007, Available at SSRN: https://ssrn.com/abstract=1026431 or http://dx.doi.org/10.1111/j.1748-3131.2007.00065.x

Hiroshi Yoshikawa (Contact Author)

Rissho University ( email )

4-2-16, Osaki, Shinagawa-ku
Tokyo 141-8802
+81334927529 (Phone)

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