The aging and decreasing population is a serious problem in many developed countries today. In Japan's case, these demographic changes are taking place at a more rapid pace than any other country has ever experienced.
With weak balance sheets, banks tend to continue lending unprofitable businesses and leave them existing.
During the past two decades, inflation has fallen to a low level in major industrial countries.
The aging and declining population will have far-reaching impacts. Declining fertility rates will possibly increase immigration. The structure of family and society will inevitably change.
In fact, the recent increase in intra-firm trading enables businesses to shift their activities across borders smoothly, thereby strengthening the response of economic activity to exchange rate movements in the long run.
The direct investment of Japanese businesses to East Asian economies accelerates the reallocation of their production bases. Consequently, between Japan and the other East Asian countries, both exports and imports are growing substantially.
As the new endogenous growth theory suggests, TFP growth is closely related to accumulation of the intangible capitals, such as human capital and research and development.
The standard growth theory tells us that economic growth in per capita basis comes from mainly two sources: capital deepening and total factor productivity growth, or TFP growth.
Well-functioning financial systems are important in achieving sustained economic growth. They play a crucial role in channeling household savings into the corporate sector and allocating investment funds among firms.
Japan's experience suggests the importance of assessing the sustainability of price stability over a fairly long period, which many central banks have emphasized in recent years.
The increased global linkages promote economic growth in the world through two key mechanisms: the division of labor and the international spillovers of knowledge.
However, in spite of the general perception that monetary policy should be conducted so as to avert deflation, a central bank cannot lower interest rates below the zero lower bound.
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