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That's just not true. Japan had extremely low inflation for 20 years, showing that the central bank wasn't expanding the money supply anywhere near fast enough.
by wbl 11y ago
That's just not true. Japan had extremely low inflation for 20 years, showing that the central bank wasn't expanding the money supply anywhere near fast enough. If the central bank really was increasing the money supply, but not real GDP, there would have to be inflation due to the velocity-of-money equation.
Japan's real problem has been a failure to deregulate the economy. It's essentially trapped in the 1970's, but without the inflationary crisis and political moment that produced the Thatcher and Reagan era reforms.
(Source of inflation data http://inflationdata.com/articles/historical-inflation-rates-japan-1971-2014/ http://inflationdata.com/articles/historical-inflation-rates...)
- yarou 11y agoI may not have been clear in my earlier reply, but I am not really talking about inflation. Rather, I am providing an example that demonstrates the futility of expansionary monetary policy when an economy hits the liquidity trap. I agree that Japan's economy is not deregulated in the sense that there is a high degree of nepotism between politically-connected families (especially those that have ties to organized crime or right-wing nationalist groups) and elected officials.