Monetary Policies in the US and Japan

analytical Essay
1782 words
1782 words

This paper presents comparative analysis of Japanese and the US monetary policies during the recession in 1990s and focuses on transmission mechanisms used by central banks in conducting policy. In spite of some differences, two central banks employed the same instruments and were similar in their operating procedures. The implementation of monetary policy in the U.S was successful which led to increase in real GDP growth, decrease in unemployment, and low and stable inflation. However, monetary policy in Japan did not follow the same path. In our paper we endeavored to provide a response to the following question: “What does account for the successful implementation of the monetary policy in the US and failure in Japan in 1990?” The first part of the essay will focus on conduction of monetary policy in the U.S and would argue that accomplishments of the Fed can partially be attributed to good luck that comes from supply-side of the economy. Another explanation can be the fact that policymakers were able to increase responsiveness of interest rates to inflation. We will proceed with discussing conduction of monetary policy in Japan and will argue that failure of Japan cannot be attributed simply to the impotency of monetary policy when interest rates are low. Finally, the paper will discuss two different views, Keynesian and Monetarist that try to explain the failure of the Bank of Japan to stimulate the economy.

The Gulf War, which was led by the US against Iraq in response to Iraq`s invasion of Kuwait, had severe consequences for the U.S. economy. Notwithstanding the fact that the ground war lasted only for 100 hours, it resulted in uncertainty and upsurge in oil prices from $15 per barrel to over $35 per barrel, receding back...

... middle of paper ...

...6. The wage price spiral.

(retrieved from 2014,

3. Goodfriend M. 2002. The Phases of US Monetary Policy: 1987 to 2001. Federal Reserve Bank of Richmond Economic Quarterly Vol.88/2

4. King, M. 2002. Challenges for Monetary Policy: New and Old.

5. Mankiw G., 2001. U.S. monetary policy during the 1990s. Harvard University Press (retrieved from )

6. Powell, B. 2002. Explaining Japan’s Recession. The Quarterly Journal of Austrian Economics vol. 5(2): 35-50.

7. Bank of Japan.

8. Federal Reserve, Department of Labor,

9. World Bank Data.

In this essay, the author

  • Compares the us and japan's monetary policies during the recession in 1990s, and argues that the success of the fed can be attributed to good luck from supply-side economics.
  • Explains that the gulf war, led by the us against iraq, had severe consequences for the u.s. economy. the ground war lasted only 100 hours and resulted in uncertainty and upsurge in oil prices.
  • Explains the fed's response to stimulate a weak economy by conducting expansionary monetary policy, which resulted in decrease in interest rate and increase in investment.
  • Explains that the u.s. monetary policy was successful in averting recession in the beginning of 1990s.
  • Analyzes how mankiw argues that the success of the fed was just a piece of luck arising from supply-side economy. the gulf war resulted in energy supply shocks, which were easy to deal with.
  • Explains that the fed's success during the recession can be explained by the fact that policymakers were able to avoid spiraling inflation.
  • Explains that economic recession in japan in 1990s was characterized by protracted deflationary slump, which is a continuous negative inflation.
  • Explains that the boj implemented expansionary monetary policy in the beginning of 1990s to stimulate the economy by decreasing the interest rate.
  • Explains that japan's gdp growth has been declining since 1990, although there was a positive trend between 1993 and 1996. figure 3 depicts the inflation rate trend in japan from 1980 to 2000.
  • Analyzes how japan's inflation rate fluctuated between negative and positive 2 percent since 1992. the expansionary monetary policy implemented by the boj failed to combat the deflation and stimulate the economy.
  • Explains that the failure of the boj in implementing expansionary monetary policy raises an interesting question.
  • Analyzes how meltzer's (1999) analysis of the us monetary history between 1914 and 1950 supports the above argument.
  • Illustrates that money and quasi money growth rates between 1990 and 1995 were on average nearly 3%, and narrow money was 5.45% for the same period. japan should have focused on money supply directly rather than on interest rates.
  • Concludes that the question of impotency of the monetary policy remains open.
  • Cites ahearne, gagnon, haltmaier, and kamin's preventing deflation: lessons from japan’s experience in the 1990s.
  • Cites king, m., mankiw g. and powell, b.

Let Our AI Magic Supercharge Your Grades!

    Get Access