The Dynamic Effects of Japanese Macroeconomic Policies: Were There Any Changes in the 1990s?

This study investigates changes in the contemporary Japanese economics and the effects of macroeconomic policies in the 1990s. We estimate several vector autoregression (VAR) models employing data detrended by different methods. This paper presents three major findings: First, there is a gradual decline in the influences of fiscal policy. Second, there is no decline in the impact of changes in the interest rate. Third, there has been a collapse in the linkage of monetary aggregates and real economy. These findings force us to reconsider the planning and designing of macroeconomic policies. Additionally, in each estimation we find strong tendency of so-called "price puzzle," which require us more investigation to theoretical model we rely.