East Asian Seminar on Economics Focuses on Monetary Policy

Article excerpt

Taiwan has experienced deflation since 1999, but prices gradually stabilized and began increasing slowly in 2004. During the period of deflation, the price structure changed. The GDP price deflator (PGDP) decreased, as did the CPI by a smaller margin. However, the Wholesale Price Index increased. In fact, this kind of price divergence has happened frequently. Yang and Shea analyze data for 1982 to 2003 to study the domestic and foreign factors that cause deflation, particularly since 1999 when the PGDP dropped. During this period, aggregate market demand was insufficient, fiscal expenditures were cut, unit output labor cost (substituting production technology and key cost factors) decreased, the Internet bubble popped, cheap Chinese products drove down global prices, and the New Taiwan Dollar appreciated. All of these forced PGDP down. The authors also analyze why WPI and CPI trends have diverged since 2002. WPI increased because when the economy recovered, an improved investment and production environment pushed up the prices of domestic products. Furthermore, China's growing economic development raised the price of imported raw materials, which further increased WPh The main reason why CPI decreased was that service prices and general domestic prices decreased. Service prices dropped because of decreases in rent and interest rates.

Hur explores the transmission of monetary policy through the bond market. Based on the assumption of delayed responses of economic agents to monetary shocks, he derives a system of equations relating the term structure of interest rates to the past history of money growth. He then tests the equations with U.S. data. His results confirm that monetary policy targeting a specific shape for the term structure of interest rates could be implemented, with certain time lags attributable to the path-dependency of interest rates.

Fukao analyzes the causes of the persistent deflation in Japan by estimating The NBER's Fifteenth Annual East Asian Seminar on Economics (EASE), sponsored jointly with Hong Kong University of Science and Technology (HKU), Korea Development Institute (KDI), Tokyo Center for Economic Research (TCER), Chung-Hua Institution for Economic Research (CIER), and the Australian Productivity Commission, took place in Tokyo, Japan on June 25-27. The organizers were NBER Research Associates Takatoshi Ito, of Tokyo University; and Andrew K. Rose, of University of California, Berkeley. The theme of the meeting was monetary policy under very low inflation rates. The following papers were discussed:

Jia-Dong Shea, National Taiwan University, and Ya-Hwei Yang, CIER, "Deflation and Price Divergence in Taiwan"

Discussants: Toshiki Jinushi, Kobe University, and Shigenori Shiratsuka, Bank of Japan

Seok-Kyun Hur, KDI, "The Use of the Term Structure of Interest Rates as a Target of Monetary Policy in an Economy with Frictions"

Discussants: Toni Braun, University of Tokyo, and Yuzo Honda, Osaka University

Mitsuhiro Fukao, Keio University, "Financial Strains and the Zero Lower Bound: The Japanese Experience"

Discussants: Piti Disyatat, Bank of Thailand, and James Harrigan, Federal Reserve Bank of New York

Tim Robinson and Andrew Stone, Reserve Bank of Australia, "Monetary Policy, Asset-Price Bubbles, and the Zero Lower Bound"

Discussants: Piti Disyatat, and Kenneth Kuttner, NBER and Oberlin College

Bennett T. McCallum, NBER and Carnegie Mellon University, "A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap"

Discussants: James Harrigan, and Kazuo Ueda, Bank of Japan

Laurence M. Ball, NBER and Johns Hopkins University, "Helicopter Drops for Japan"

Discussants: Mitsuru Iwamura, Waseda University, and Kimsong Tan, Singapore Management University

Mitsuru Iwamura, and Takeshi Kudo and Tsutomu Watanabe, Hitotsubashi University, "Monetary and Fiscal Policy in a Liquidity Trap: The Japanese Experience, 1999-2004"

Discussants: Fumio Hayashi, NBER and University of Tokyo, and Kimsong Tan

Takatoshi Ito, and Frederic S. …