1999 Reports

Historical, structural, and macroeconomic perspectives on the Japanese economic crisis

Weinstein, David E.

Paul Krugman once noted that it is not remarkable that people tend to favor structural interpretations for economic problems. Losing one's job or seeing one's wealth fall by a factor of two or three is often a tragedy for workers and their families. It is an anathema that this might be the result of some bureaucrat accidentally miscalculating the money supply in one's own country or, even worse, in some other country. How can such pain be caused by something so trivial as misreading information about monetary aggregates? Yet, these are exactly the explanations that economic theory suggests are critical in understanding business cycles. Hence it is not surprising that in all countries there is a tendency to give business cycles a structural interpretation.