Comments by Zhichao Zhang, on Monetary Policy and Structural Decline: Lessons from Japan for the European Crisis

Abstract

Zhichao Zhang: Schnabl’s paper on Japanese lessons for the European crisis is informative and insightful. The paper carefully examines the origins of the crises, crisis triggers, and consequences of crisis therapies in both Japan and Europe. It then draws lessons from the Japanese experience in the spirit of Hayek (1929, 1944). The paper maintains that the Japanese case shows that, in the face of crisis, the Keynesian stimulus would lead to the malfunctioning of the market mechanism. This is evidenced in the hysteresis of the lowinterest rate and high government debt environment, the erosion of the allocation and signalling of the interest rate, the gradual quasi-nationalization of financial institutions, and gradual real income losses. Given that Europe has taken a similar path in its policy response to the crisis, the paper indicates that Europe may suffer similar consequences that Japan has experienced in recent decades.