. when a negative shock happens to diminish growth prospects, management refrains from engaging in capital investment and giving pay raises, and households cut consumption expenditures to increase savings for the future. if a fall in growth expectations were a one - off event, price levels would stabilize soon after necessary adjustments were made. however, when such a decline happens several times, a chronic demand shortfall would keep placing downward pressure on price levels and deflation would persist. persistent deflation may also have been caused by the following mechanism that operates through the price - and wage - setting behavior of firms. japanese export firms dealt with the severe competition coming from low - cost emerging countries by cutting costs – that is, cutting wages and delivery prices. this had a spillover effect on the non - manufacturing and public sectors in japan, resulting in a fall in the general price level. this led to an appreciation of the japanese yen through the purchasing power parity ( ppp ) mechanism. as this currency appreciation partly offsets the effects of initial cost cuts by export firms, the whole cycle starts once again, beginning with cost cuts by firms. deflation persists in that process. see reinhart and rogoff ( 2012 ) and imf ( 2009 ). the impact of population ageing is multifaceted. obviously, it creates the financial burden of supporting a larger older population with a smaller younger generation, leading to fiscal problems. the dominance of elderly consumers changes the demand structure and thus necessitates structural changes in corporate bis central bankers ’ speeches advancements is another element that deserves more extensive discussion, especially in terms of its impact on employment. 4 in my remarks today, i explain my own view about the role of the central bank in a slow growth environment, which is distinctively schumpeterian, and describe the policies adopted by the bank of japan from this viewpoint. but first, let me briefly review the development of the real growth rate in japan and other advanced countries. ii. evolution of post - crisis economic growth : japan as a spearhead of change japan has an extraordinary history of real gdp growth over the past six decades, from the annual average of a roaring 9. 7 % in the 1960s to a meager 0. 6 % in the 2000s, as depicted in chart 1. chart 2 decomposes real gdp growth into the growth in labor productivity and that of labor inputs. note that the peak of the japanese property bubble is around 1990. comparing pre - bubble growth ( 1980s

kiyohiko g nishimura : funding for financing economic growth – a schumpeterian perspective remarks by mr kiyohiko g nishimura, deputy governor of the bank of japan, at the gic ( global interdependence center ) conference on “ the global financial crisis – lessons from japan ”, tokyo, 3 december 2012. * i. * * introduction : beyond standard macroeconomics having experienced prolonged stagnation after the global financial crisis of 2008, economists, market participants, and policymakers alike have arrived at the painful recognition that per capita real output has a long path toward recovering its pre - crisis level. to tackle this stagnation, the standard macroeconomic prescription is simple and straightforward : the policymaker should conduct an expansionary policy to fill the gap between actual and potential gdp, treating potential gdp as exogenously given. although it is difficult to tell in real time whether the observed weakness in economic recovery is cyclical or structural, it seems obvious that the current gdp gap is large no matter how one measures the potential. under this prescription, and facing the zero bound on nominal interest rates, central banks in advanced countries are currently employing unconventional measures, such as large - scale asset purchase programs. however, i believe we need to go beyond such a standard way of policy thinking in order to bring about effective policy in this slow growth environment. we should consider policies that influence the growth potential itself. in particular, i suggest that central banks should find tools to support the efforts to strengthen the foundation for economic growth. this may look even more unconventional than already unconventional asset purchase programs. but it should be noted that price stability, the goal of central banking, becomes difficult to achieve once growth expectations diminish and the economy becomes prone to hit the zero bound. 1 thus, it is absolutely necessary to raise growth expectations in order to alleviate the difficulty in maintaining price stability. and i presume that monetary policy can influence the growth potential over a long term, although such effects are uncertain and indirect. indeed, there have been several signs of these diminished growth expectations in many countries. the aftereffect of a financial crisis has been discussed extensively. 2 population ageing is another factor that is already impacting advanced economies and coming soon to several emerging economies. 3 a not - so - growth - friendly change in the current technological persistent deflation found in japan in the past decade was at least partly caused by recurrent negative shocks that caused continuously diminishing growth expectations