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122. Economic Leverage and the North Korean Nuclear Crisis
- Author:
- Kimberly Ann Elliott
- Publication Date:
- 04-2003
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Almost a decade ago, as the last nuclear crisis with North Korea was reaching a peak, I concluded the following about the potential utility of economic sanctions: The debate over US policy toward North Korea boils down to one deceptively simple question: what does Kim Il-sung want? No one can be sure of the answer and different interpretations have quite different policy implications. If the Great Leader views a nuclear weapons option as important to the survival of his regime, economic sanctions are unlikely to force him to give it up. But if he views the threat of developing nuclear weapons as a bargaining chip, some combination of carrots and sticks may induce him to trade it away.
- Topic:
- Diplomacy, Economics, and International Trade and Finance
- Political Geography:
- Israel, East Asia, and North Korea
123. The Difficulties of Discerning What's Too Tight: Taylor Rules and Japanese Monetary Policy
- Author:
- Adam S. Posen and Kenneth N. Kuttner
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Observers have relied increasingly on simple reaction functions, such as the Taylor rule, to assess the conduct of monetary policy. Applying this approach to deflationary or near-zero inflation environments is problematic, however, and this paper examines two shortcomings of particular relevance to the Japanese case of the last decade. One is the unusually high degree of uncertainty associated with potential output in an environment of prolonged stagnation and deflation. Consequently, reaction function-based assessments of Japanese monetary policy are so sensitive to the chosen gauge of potential output as to be unreliable. The second shortcoming is the neglect of policy expectations, which become critically important as nominal interest rates approach zero. Using long-term bond yields, we identify five episodes since 1996 characterized by abrupt declines in Japanese inflation expectations. Policies undertaken by the Bank of Japan during this period did little to stabilize expectations, and the August 2000 interest rate increase appears to have intensified deflationary concerns.
- Topic:
- Climate Change, Economics, and International Trade and Finance
- Political Geography:
- Japan, Israel, East Asia, and Asia
124. Revitalizing the Economies of Japan and the United States
- Author:
- C. Fred Bergsten
- Publication Date:
- 06-2003
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The United States and Japan are the two largest national economies in the world. Since the early 1990s, they have been moving in opposite directions. The United States enjoyed an expansion of record duration from the end of the Gulf War in 1991 until early 2001, growing much faster than any other G-7 country and much faster than it had at any time since the Second World War. Japan's economy, by contrast, has been virtually stagnant since its financial bubble burst in the early 1990s and has clearly experienced its worst performance since its recovery from the ravages of the Pacific War.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- United States, Japan, Israel, and East Asia
125. The Trezise Symposium on the Japanese Economy
- Author:
- Edward J. Lincoln
- Publication Date:
- 06-2002
- Content Type:
- Policy Brief
- Institution:
- The Brookings Institution
- Abstract:
- The Japanese economy has undergone a decade of sluggish growth marked by three recessions, including the current one. This time, recession is accompanied by general price deflation, a situation unprecedented among industrialized nations since the Great Depression of the 1930s. Meanwhile, the financial sector sits on a rising mountain of bad loans. A serious financial crisis and deeper recession are real possibilities.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- Japan, Israel, and East Asia
126. Foreign Penetration of Japan's Investment-Banking Market: Will Japan Experience the "Wimbledon Effect"?
- Author:
- Nicole Pole
- Publication Date:
- 07-2002
- Content Type:
- Working Paper
- Institution:
- Walter H. Shorenstein Asia-Pacific Research Center
- Abstract:
- Foreign banks have long faced difficulties in attempting to enter certain Japanese financial markets. This is due partly to regulatory practices and partly to specific Japanese socioeconomic conditions, for instance the system of relationship banking. While retail banking is still a sector in which almost no foreigners have been able to succeed, some foreign financial institutions have been able to gain market share in investment and wholesale banking.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- Japan, Israel, East Asia, and Asia
127. Inflation Dynamics and International Linkages: A Model of the United States, the Euro Area, and Japan
- Author:
- Gunter Coenen and Volker Wieland
- Publication Date:
- 07-2002
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- In this paper we estimate a small macroeconometric model of the United States, the euro area and Japan with rational expectations and nominal rigidities due to staggered contracts. Comparing three popular contracting specifications we find that euro area and Japanese inflation dynamics are best explained by Taylor-style contracts, while Buiter-Jewitt/Fuhrer- Moore contracts perform somewhat better in fitting U.S. inflation dynamics. We are unable to fit Calvo-style contracts to inflation dynamics in any of the three economies without allowing either for ad-hoc persistence in unobservables or a significant backward-looking element. The completed model matches inflation and output dynamics in the United States, the euro area and Japan quite well. We then use it to evaluate the role of the exchange rate for monetary policy. Preliminary results, which are similar across the three economies, indicate little gain from a direct policy response to the exchange rate.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- United States, Japan, and Israel
128. Preventing Deflation: Lessons From Japan's Experience in the 1990s
- Author:
- Jane Haltmaier, Alan J. Ahearne, Joseph Gagnon, and Steve Kamin
- Publication Date:
- 06-2002
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- This paper examines Japan's experience in the first half of the 1990s to shed some light on several issues that arise as inflation declines toward zero. Is it possible to recognize when an economy is moving into a phase of sustained deflation? How quickly should monetary policy respond to sharp declines in inflation? Are there factors that inhibit the monetary transmission mechanism as interest rates approach zero? What is the role for fiscal policy in warding off a deflationary episode? We conclude that Japan's sustained deflationary slump was very much unanticipated by Japanese policymakers and observers alike, and that this was a key factor in the authorities' failure to provide sufficient stimulus to maintain growth and positive inflation. Once inflation turned negative and short-term interest rates approached the zero-lower-bound, it became much more difficult for monetary policy to reactivate the economy. We found little compelling evidence that in the lead up to deflation in the first half of the 1990s, the ability of either monetary or fiscal policy to help support the economy fell off significantly. Based on all these considerations, we draw the general lesson from Japan's experience that when inflation and interest rates have fallen close to zero, and the risk of deflation is high, stimulus–both monetary and fiscal–should go beyond the levels conventionally implied by baseline forecasts of future inflation and economic activity.
- Topic:
- Economics, Industrial Policy, and International Trade and Finance
- Political Geography:
- Israel
129. The Benefits and Costs of Group Affiliation: Evidence from East Asia
- Author:
- Stijn Claessens, Joseph P.H. Fan, and Larry H.P. Lang
- Publication Date:
- 05-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper investigates the benefits and associated agency costs of using internal capital markets through affiliating with groups using data of two thousand firms from nine East Asian economies between 1994-6. We find that mature and slow-growing firms with ownership structures more likely to create agency problems gain more from group affiliation, while young and high-growth firms more likely lose. Agency problems are important explanatory factors of firm value in economies outside Japan, but less so in Japan. Consistent with the literature, financially constrained firms benefit from group affiliation. Our results are robust to different time periods and estimation techniques.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- Israel and East Asia
130. Global Economic Prospects
- Author:
- Michael Mussa
- Publication Date:
- 09-2002
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The global economic recovery is continuing but at a somewhat slower pace than was anticipated six months ago. Specifically, using the country weights from the IMF's World Economic Outlook, the forecast for real GDP growth in the world economy during 2002 (i.e., on a fourth-quarter-to-fourth-quarter basis) is cut by about half a percentage point to 3 percent—a pace that is slightly below my estimate of the potential growth rate for world GDP. This downward revision reflects primarily slower growth than earlier expected during the first half of 2002 in most industrial countries and the expectation that growth will remain somewhat more sluggish than earlier expected at least through year-end. For 2003, the forecast for global economic growth is also cut by about half a percentage point—to 4 percent—reflecting both general factors suggesting slightly weaker performance in many industrial and developing countries and the particular economic risks arising from possible military action against Iraq and from potential credit events affecting key developing countries. Despite these downward revisions, however, there is little doubt that the world economy will see significant improvement this year from the 1 percent growth recorded in 2001, and it is still reasonable to expect further improvement to a growth rate modestly above global potential during 2003.
- Topic:
- Economics
- Political Geography:
- United States, Iraq, Europe, Israel, Asia, South America, Latin America, and North America