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The Federal Reserve in the Shadow of the Bank of Japan

Thomas F. Cargill; Gerald P. O'Driscoll Jr.

Title:
The Federal Reserve in the Shadow of the Bank of Japan
Author(s):
Cargill, Thomas F.
O'Driscoll Jr., Gerald P.
Date:
Type:
Reports
Department(s):
Center on Japanese Economy and Business
Persistent URL:
Series:
Center on Japanese Economy and Business Working Papers
Part Number:
362
Publisher:
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Publisher Location:
New York
Abstract:
Many commentators on Federal Reserve policy over the past decade devote little attention to the experience of other central banks and especially the experience of Japan and the Bank of Japan. In fact, there is very little that is new in the U.S. situation that had not already been experienced by Japan and the Bank of Japan over a decade earlier. Many commentators view Federal Reserve policy as unique and special with regard to other central banks; however, the differences between the financial and economic stress experienced by Japan and the United States pale in comparison to the similarities. In many respects, the Federal Reserve is in the shadow of Bank of Japan and a better understanding of the comparative records of the two central banks offers important insight into central bank policy. The paper explores three aspects of the relationship between the Bank of Japan and the Federal Reserve . First, the asset bubbles and bursting of those bubbles in Japan (1985 to 1991) and the United States (2001 to 2006) were both the result of central bank policy errors combined with a flawed financial structure. Second, the political economy of the operating environment of the Bank of Japan and the Federal Reserve ensures continued suboptimal monetary policy regardless of institutional redesigns of the central bank. Third, the Bank of Japan and the Federal Reserve together present a serious contradiction to the conventional wisdom that legal independence is the foundation for optimal central bank policy outcomes. A concluding section brings together the main points of the discussion. These suggest that a better understanding of Federal Reserve policy since the start of the new century might start with a review of Japan and the Bank of Japan.
Subject(s):
Finance
Banks and banking, Central
Financial crises
Economic policy
United States. Federal Reserve Board
Nihon Ginkō
Item views
124
Metadata:
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Suggested Citation:
Thomas F. Cargill, Gerald P. O'Driscoll Jr., , The Federal Reserve in the Shadow of the Bank of Japan, Columbia University Academic Commons, .

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