Japan\u27s Prolonged Recession and Monetary Policy

This paper examines how over a period of more than ten years, Japan\u27s economy experienced prolonged recession of a kind which had never been observed before. It focuses on the events in Japan\u27s economy since 1985, tracing how asset prices in flated and collapsed, and how the Bank of Japan responded to the deteriorating economy. We will learn from Japan\u27s experience that it is very difficult to reactivate an economy with monetary policy, once it has fallen into deflation. We will conclude that the BOJ should notignore the role of money stock, citing statistical evidence of the relationship between money stock and the economic activity