The Holy Grail of Macroeconomics, Revised Edition: Lessons from Japans Great Recession / Edition 1

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The revised edition of this highly acclaimed work presents cruciallessons from Japan's recession that could aid the US and othereconomies as they struggle to recover from the current financialcrisis.

This book is about Japan's 15-year long recession and how itaffected current theoretical thinking about its causes and cures.It has a detailed explanation on what happened to Japan, but thediscoveries made are so far-reaching that a large portion ofeconomics literature will have to be modified to accommodateanother half to the macroeconomic spectrum of possibilities thatconventional theorists have overlooked.

The author developed the idea of yin and yang business cycleswhere the conventional world of profit maximization is the yang andthe world of balance sheet recession, where companies areminimizing debt, is the yin. Once so divided, many varied theoriesdeveloped in macro economics since the 1930s can be nicelycategorized into a single comprehensive theory- The Holy Grailof Macro Economics

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Editorial Reviews

From the Publisher
Reviews from the previous edition

"...provide fascinating insights into the problems of Japan...interesting thesis" (, August 2009)

"…the Japanese policymakers who told everyone the US was in danger of falling into a prolonged period of economic weakness were right. To understand why this is true, you need to read a brilliant book by Richard Koo of the Nomura Research Institute." (Financial Times, January 2009)

"…the definitive book on Japan's decade-long recession in the 1990s." (USA Today, March 2009)

"Books about the current global economic crisis are being written and published by the truckload. But few – perhaps none – are worth reading… Richard Koo, chief economist at the Nomura Research Institute in Tokyo, a think tank attached to Japan's biggest investment bank, watched Japan's 'lost decade' from an excellent vantage point: he was close enough to understand the detail, data and ways in which both corporate and political decisions were made, and independent enough to be able to analyse what happened in a reasonably detached and cool way." (Survival, May 2009)

"A must-read to an understanding of what Japan went through and what the United States and Europe may experience is Koo's latest book The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession." (The Edge Financial Daily, December 2008)

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Product Details

  • ISBN-13: 9780470824948
  • Publisher: Wiley
  • Publication date: 8/17/2009
  • Edition description: Revised Edition
  • Edition number: 1
  • Pages: 352
  • Sales rank: 1,470,130
  • Product dimensions: 6.00 (w) x 8.90 (h) x 1.20 (d)

Meet the Author

Richard C. Koo is the Chief Economist of Nomura Research Institute, the research arm of Nomura Securities, the leading securities house in Japan. Consistently voted as one of the most reliable economists by Japanese capital and financial market participants for nearly a decade, he has also advised successive prime ministers on how best to deal with Japan's economic and banking problems. He served as an economist with the Federal Reserve Bank of New York, and was a Doctoral Fellow of the Board of Governors of the Federal Reserve System. Author of many books, including Balance Sheet Recession: Japan's Struggle with Uncharted Economics and its Global Implications, and a visiting professor of Waseda University, he was awarded the Abramson Award by the National Association of Business Economics, Washington, D.C. in 2001.

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Table of Contents


Chapter 1 What kind of recession has Japan been through?

Chapter 2 Characteristics of balance sheet recessions thatshould be kept in mind during the recovery.

Chapter 3 The Great Depression was also a balance sheetrecession.

Chapter 4 Monetary, foreign exchange, and fiscal policy during abalance sheet recession.

Chapter 5 Yin and Yang economic cycles and the Holy Grail ofmacroeconomics.

Chapter 6 Pressure of globalization.

Chapter 7 Ongoing bubbles and balance sheet recessions.

Chapter 8 World in Balance-Sheet Recession.

Appendix: Thoughts on Walras and macroeconomics.


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Sort by: Showing all of 4 Customer Reviews
  • Posted September 14, 2009

    I Also Recommend:

    Brilliant attack on conventional policies

    Richard Koo, chief economist of Tokyo's Nomura Research Institute, has written a fascinating and important book. He claims that capitalist economies have two phases: the ordinary phase, in which firms aim to maximise profits, and the post-bubble phase, when they aim to pay off their debts. He believes that he has found the missing link of economics: "corporate debt minimisation, therefore, is the long-overlooked micro-foundation of Keynesian macro-economics."

    It's still boom and bust. Koo claims that in the boom phase, monetary policy works, but not fiscal; in the bust phase, only fiscal policy works, not monetary. He shows how monetary policy cannot fight a slump. He contends that only huge fiscal stimuli, government actions to boost domestic demand, can prevent slumps.

    Koo claims that, in the 1930s depression, in Japan's recession since 1990, and in the present crisis, the problem was the private sector's lack of demand for loans, not a lack of funds from the central banks. Contrary to the consensus, these depressions were not caused by the wrong monetary policy.

    How to fight a slump? Cutting spending to reduce government debt is the road to disaster. In the 1930s, both President Hoover and Chancellor Bruning insisted on balancing the budget, which crashed the US and German economies. In 1945 the British government's debt was 250% of GDP, but the country survived. Between 1933 and 1936, President Roosevelt raised government spending by 125%, so GDP rose by 48% and tax revenues rose by 100%. But in 1937 he changed tack and cut spending: industrial output fell by 33%.

    Japan's recession (caused by falls in the value of its assets - land and loans) destroyed 1500 trillion yens' worth of wealth - three years of Japan's GDP. (The USA's depression lost it one year's GDP.) In Japan, monetary stimuli failed, so the Japanese government proposed irrelevant Thatcherite supply-side changes, like privatising the post office.

    In 1997 the Hashimoto government, under IMF pressure, cut spending and raised taxes to balance the budget. As a result, output fell for five quarters, Japan's worst post-war meltdown, and the budget deficit rose from 22 trillion yen in 1996 to 38 trillion in 1999. In 2001, the Koizumi government did the same - with the same result. It also tried the monetary policy of quantitative easing. But this did not increase lending or the money supply. It was irrelevant.

    Subsequently, the Japanese government adopted a policy of no fiscal consolidation without growth, i.e. no spending cuts or tax rises before private-sector demand recovered. This fiscal stimulus prevented a 1930s-style depression; by 2005, firms had started to borrow again.

    Again, in Germany's balance sheet recession of 2000-05, "the Maastricht Treaty prevented it from applying the fiscal stimulus it needed. This deepened the recession", as Koo observes.

    Finally, he notes the harmful effects of the free movement of capital: "in view of the explosion of cross-border capital flows during the past two decades contributing to adverse currency movements and the widening of global imbalances, some restrictions on those flows may be desirable." He also notes the damage done by free trade: "that market forces have not only failed to rectify trade imbalances but actually made them worse suggests that some kind of government action may be necessary."

    2 out of 2 people found this review helpful.

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  • Posted September 5, 2009

    Extremely Relevant Theory concerning general price levels, and threats of inflation and deflation

    As a long time student and follower of monetarist economists, I was surprised with the clarity of Mr. Koo's thesis concerning "Balance Sheet Recessiions", and the strong possibility of deflation in the U.S. in the years to come. He accurately compared and contrasted the US Great Depression with the recent Japanese Great Recession, and convincingly described how large government budget deficits to stimulate a moribund economy can co-exist with low long term interest rates.

    A must read for people who are concerned about Washington's prolifigate spending spree, and the economic effects of the fiscal crisis.

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  • Posted June 29, 2009

    Put this at the top of you list

    Very well written with good insight into what is going wrong with the US economy with lessons to be learned from the often cited problems in Japan in the 1990s.

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  • Anonymous

    Posted February 23, 2010

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