Monetary policy and macroeconomic factors: Japan versus the US and the euro area

Abstract

Narratives that portray macroeconomic policies in Japan as unlike ones pursued in other large economies persist. I revisit how several factors, including monetary, fiscal, and demographic factors impact Japan, the US, and the euro area. Panel VARs driven by factors or observed macroeconomic determinants are used. Many, but not all, of the shocks examined have similar impact across all three economies considered. This is true for monetary policy and the response of global inflation to demographic shocks. The response of real economic activity to many of the shocks considered is also comparable. Fiscal and demographic factors, often omitted in studies of this kind, also significantly impact all three economies although the size of the response does differ across the economies examined. Japan may not be like other systemically important economies in all respects, but its experience is less idiosyncratic than usually portrayed.