A low rate of inflation itself now poses a new challenge of achieving and promoting sustained economic growth in the global economy.
As for the short run effects, exchange rate movements influence the economy through changing relative prices between goods at home and abroad.
As the new endogenous growth theory suggests, TFP growth is closely related to accumulation of the intangible capitals, such as human capital and research and development.
Asset price fluctuations have important implications for promoting more efficient resource allocations and achieving sustained growth in the long run.
During the past two decades, inflation has fallen to a low level in major industrial countries.
For example, a low inflation economy has a higher risk of deflation, and the interest rates find no other way than declining.
Good news is that banks' lending attitude seems to be gradually becoming far more accommodative than in the previous recoveries.
Growth theory tends to focus on the trend growth paths in the long run. Observed growth paths, however, are not smooth.
However, in spite of the general perception that monetary policy should be conducted so as to avert deflation, a central bank cannot lower interest rates below the zero lower bound.
I certainly welcome discussions on how central banks can best contribute to sustained economic growth and sound development of the global economy.
In fact, the recent increase in intra-firm trading enables businesses to shift their activities across borders smoothly, thereby strengthening the response of economic activity to exchange rate movements in the long run.
In this context, the current recovery in the Japanese economy is taking place in tandem with the growing interdependence with the rest of the world, particularly with the other East Asian economies.
Japan's experience suggests the importance of assessing the sustainability of price stability over a fairly long period, which many central banks have emphasized in recent years.
On the contrary, exchange rate movements still play an important role in facilitating more efficient resource allocations in the long run.
Our understanding of economic growth has advanced significantly since the revival of growth theory in the mid-1980s.
Recent empirical studies, however, show such short run effects become small because the exchange rate pass-through to import prices declines.
The aging and declining population will have far-reaching impacts. Declining fertility rates will possibly increase immigration. The structure of family and society will inevitably change.
The aging and decreasing population is a serious problem in many developed countries today. In Japan's case, these demographic changes are taking place at a more rapid pace than any other country has ever experienced.
The direct investment of Japanese businesses to East Asian economies accelerates the reallocation of their production bases. Consequently, between Japan and the other East Asian countries, both exports and imports are growing substantially.
The downward rigidity of nominal wages is often pointed out as a factor that prevents the smooth adjustment of real wages under very low inflation.
The increased global linkages promote economic growth in the world through two key mechanisms: the division of labor and the international spillovers of knowledge.
The staff at the Institute will present an analysis on how asset price fluctuations and subsequent structural adjustments influence sustained economic growth, based on Japan's experience since the second half of the 1980s.
The standard growth theory tells us that economic growth in per capita basis comes from mainly two sources: capital deepening and total factor productivity growth, or TFP growth.
They emphasize the viewpoint that the protracted economic stagnation in Japan derives from incomplete economic adjustments to significant changes in relative prices.
Thus, the questions we should ask here are what makes the current economic upswing different from the past two recoveries, and whether such differences are sufficient for the economy to reach the sustained growth path.
We cannot say for sure that the current recovery will be durable and strong enough to push the economy back to a sustained growth path.
Well-functioning financial systems are important in achieving sustained economic growth. They play a crucial role in channeling household savings into the corporate sector and allocating investment funds among firms.
With weak balance sheets, banks tend to continue lending unprofitable businesses and leave them existing.
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