Is Japan Heading for Another Lost Decade?

by Frank Shostak

Recently various commentators have been warning Euro-zone policymakers that they needed to boost stimulus policies in order to avoid a Japanese-style lost decade. To support their case, they point to the years 1991 to 2000. The average growth of real GDP in Japan during that period stood at 1.2 percent versus the average growth of 4.7 percent during 1980 to 1990. In terms of industrial production, the average growth stood at 0.1 percent versus 4.1 percent.

Central bank policies and the Ireland and Iceland 2008-12 financial crises

By Dr Frank Shostak.

There were a lot of commentaries regarding the Ireland and Iceland 2008-12 financial crises. Most of the commentaries were confined to the description of the events without addressing the essential causes of the crises. We suggest that providing a detailed description of events cannot be a substitute for economic analysis, which should be based on the essential causes behind a crisis. The essential cause is the primary driving force that gives rise to various events such as reckless bank lending (blamed by most commentators as the key cause behind the crisis) and a so called overheated economy.

Now in terms of real GDP both Ireland and Iceland displayed strong performance prior to the onset of the crisis in 2008. During 2000 to 2007 the average growth in Ireland stood at 5.9% versus 4.6% in Iceland. So what triggered the sudden collapse of these economies?

Central bank policy the key trigger for economic boom



What set in motion the economic boom (i.e. a strong real GDP rate of growth) in both Ireland and Iceland was an aggressive lowering of interest rates by the respective central banks of Ireland and Iceland. In Ireland the policy rate was lowered from 13.75% in November 1992 to 2% by November 2005. In Iceland the policy rate was lowered from 10.8% in November 2000 to 5.2% by April 2004.