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Deleveraging and Growth: is the developed world following Japan's long and winding road?


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Speaker(s): Masaaki Shirakawa
Chair: Professor Lord Stern

Recorded on 10 January 2012 in Old Theatre, Old Building.

Until a few years ago, the long stagnation of the Japanese economy after the bursting of a credit-fuelled asset bubble in the late 1980s was regarded as an episode that would never be replicated elsewhere in the world. Quite a few commentators argued that the recovery became unnecessarily drawn-out and painful because policy responses were ill-timed and inadequate. Many experts believed that prompt and massive policy responses would save any other economy from the same fate as Japan.

Three years after the global economy had nearly suffered a meltdown in late 2008, following the collapse of Lehman Brothers, growth, especially in the developed economies, remains anemic, in spite of the huge fiscal stimulus and decisive monetary easing quickly introduced by governments and central banks. Economists are drawing graphs of current GDP, inflation, property prices and interest rates superimposed with Japanese data from the 1990s, revealing eerily similar patterns. Now, there is a growing fear among the general public of a prolonged period of weak growth in the developed economies, expressed in one word as "Japanization."

TMasaaki Shirakawa is the Governor of the Bank of Japan, he will reflect on the experience of Japan leading to and following the bursting of the Japanese bubble, drawing particular attention to the fragility of the recovery under economy-wide deleveraging. There will be a discussion on the similarities and dissimilarities between Japan in the 1990s and the current state of developed economies, with an added emphasis on factors behind the credit and asset-price cycles, including demography, the structure of the labor market and the sectoral distribution of debt. Another issue to be examined is the increasing concerns over the sustainability of government finances after massive fiscal stimuli. The speech will conclude by exploring the role of policy in sustaining and strengthening the recovery under the dual constraint of fiscal sustainability and the zero-bound on nominal interest rates.

TMasaaki Shirakawa was born in Fukuoka Prefecture in Japan on September 27, 1949. Governor, Bank of Japan since April 9, 2008; Chair of the Bank for International Settlements (BIS) Asian Consultative Council since October 2010, and Vice-Chairman of the Board of Directors of the BIS since January 2011; Member of the Group of Thirty since August 2009. Graduated from the University of Tokyo with a B.A. in Economics and hired by the Bank of Japan in 1972, he completed his advanced training at the University of Chicago (M.A. in 1977). At the Bank of Japan, his career encompassed both monetary policy and financial stability, and held key positions, including Executive Director (2002 - 2006), responsible for laying the groundwork of Japanese monetary policy decisions. He also had extensive international experience, as the General Manager for the Americas and as the Advisor to the Governor for International Capital Markets. Leaving the Bank in July 2006, he assumed Professorship at the Kyoto University School of Government until March 2008, when he rejoined the Bank.

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