. declining mobility is found in the household sector in the united states. figure 5. 2 shows changes in the householder mobility rate between 2005 and 2009. a sharp decline is found across all age groups. since there is no such change in renters, this sharp decline suggests that the housing crash reduced householder mobility rates. loss of non - tangible / human capital the second consequence of severe and prolonged balance sheet adjustment is the loss of non - tangible or human capital. de - leveraging firms and households suffering long underutilization or under - employment tend to lose their non - tangible or human capital. in japan, this has been observed especially in small to medium - sized enterprises : loss of entrepreneurship, loss of human networks in skilled manufacturing, and loss of access to technological advances. in the united states, the long - term unemployed or underemployed risk losing their human capital. problems in financial intermediation the third consequence of severe and prolonged balance sheet adjustment is the deterioration in financial institutions ’ efficient functioning as financial intermediaries. this was most acutely observed in japan during the several years after the bubble burst : a pile - up of bis central bankers ’ speeches non - performing loans seemed to lead to a breakdown in the “ market selection mechanism ” around 1997. figure 6 shows the result of a large - scale panel analysis of japanese firms, in which the total factor productivity of exiting and surviving firms is compared. survival of the fittest is a basic premise of the natural selection mechanism. thus, if the market mechanism works well, the productivity of successful and surviving firms should be higher than that of failing and hence exiting firms, at least on the average. in this figure, the shaded areas show cases where the productivity of failing and thus exiting firms is higher than that of surviving firms, which is an anomaly. in fact, the shaded areas are rather exceptional most of the time. however, if we look at the period 1996 – 97, the period of the financial crisis, we see many shaded areas indicating that more productive firms were exiting in many industries. this strongly suggests a breakdown in the natural selection mechanism. results of acute b / s adjustment under population ageing : japan in the 2000s so, what are the end results of acute balance sheet adjustment under population ageing? some of these consequences can be seen in the japanese situation in the 2000s. first, growth prospects declined. the average real gdp growth fell from 5 % to 4 % in the 70s and 80s to around 1 %

kiyohiko g nishimura : this time may truly be different – balance sheet adjustment under population ageing speech by mr kiyohiko g nishimura, deputy governor of the bank of japan, prepared for the panel “ the future of monetary policy ” at the 2011 american economic association annual meeting, denver, colorado, 7 january 2011. * 1. * * introduction : population ageing this panel ’ s topic “ the future of monetary policy ” is doubly opportune. firstly, more than two years have past since the immediate fallout of the lehman brothers ’ collapse, giving us time both to look back and to look forward. secondly, we are not yet out of the woods and are still in the process of soul - searching ; pursuing a better understanding of our economic environment and the appropriate monetary policy responses. in this presentation, i will give a perspective that may be different from other panelists : longer - run, more qualitative than quantitative. specifically, to contemplate the future, i start from the fact that we are in the midst of a balance sheet adjustment process after the financial bubble burst, at a time when the population is ageing. this is not the simple balance sheet adjustment of the past, which took place with a growing young population. this is an acute balance sheet adjustment when the composition of the nation ’ s population is rapidly tilting toward the old. this is unprecedented in our modern history of economic growth. this ageing population is the result of people ’ s choices made many years ago when, after the second world war, birth control became possible and substantial medical improvements were reducing child mortality and increasing longevity. these medical advances and the baby boom after the war, together with longer life expectancy, are true blessings for economic growth, bringing what are often called population dividends, with many young workers producing and few old people being supported. however, at some point in time, the trend had to be reversed. the significant point for us here is that the bubble we have experienced has coincided closely with the turning point in these demographic dynamics. population ageing : inverse dependency ratio let me show you some telling figures on the inverse dependency ratio, which indicates how many people of working age it takes to provide for one dependent person. the japanese ratio peaked around 1990, and it was in the very next year, 1991, that the japanese bubble peaked. the peak of the us ratio was between 2005 and 2010, and the peak of the us subprime