RECONSIDERING JAPANESE DEFLATION DURING THE 1920S

This paper takes issue with a mainstream view according to which the alleged poor performance of the Japanese economy during the 1920s was the result of the deflationary macroeconomic policies: such policies were repeatedly announced but not implemented until 1929. Price deflation is explained with a model showing that the announcement of a future appreciation of the exchange rate will lead to a decline in the price level. Both in international perspective and in light of later Japanese events, it is difficult to hold a negative view of the inability of Japanese governments to implement consistent deflationary policies during the 1920s. © 1992.