was the lehman shock. in the latter case, the contraction was more acute than the first case ( slide 5 ). fifth, japan is facing another sharp decline of economic activity triggered by the great east japan earthquake. research agenda going forward admittedly, the global financial crisis in the late 2000s together with the aforementioned five facts left us with no choice but to realize how little we knew about macroeconomic dynamics. against the backdrop, i put a bubble and a resultant financial crisis at the top of the research agenda. beyond a variety of discussions prompted by the global financial crises, we need to make further progress on this front. the second issue is economic and social consequences of sizeable demographic changes, such as a declining population and ageing. the third issue is repercussions of natural disasters on economic activity. the second and third issues may look remote to financial systems and monetary policy, but it is a prima facie impression as i will flesh out later. a declining population gives rise to an outright reduction in the natural rate of interest and this could constrain monetary policy via the zero lower bound. if the guaranteed return of pension policies did not adequately reflect the anticipated decline in the natural rate of interest due to a decline in the population, the misalignment could spur the search - for - yield which would sow the seeds of a bubble. iii. bubbles and financial crises i will start with the first issue on the agenda, that is, bubbles and financial crises. we have commonly observed across countries that economic contractions following the burst of a bubble tend to be protracted and subsequently, the economies hobble at an early phase of recovery. 2 in the aftermath of the two bubbles, namely, one in the u. s. late 2000s and the see reinhart and reinhart ( 2010 ). bis central bankers ’ speeches other in the japanese 1990s, both the gdp growth rate and inflation show similar trajectories across the two cases ( slide 6 ). the crippled balance sheets can be detected as the primary factors that impede the economic recoveries, while we also need underscore the linkage of low productivity growth and the inefficient resource allocations resultant from the malfunctioning credit intermediation. in fact, to promote economic growth, it is crucially important to maintain economic metabolism by smoothly reallocating economic resources toward the sectors with higher growth potential. in this regard, economists at the bank of japan estimated that the distortion in factor

flooding the economy with the monetary base, the proposition is, at least, not compatible with the recent experiences in japan as well as in the u. s. in japan, between 1997 and 2010, the monetary base soared by 90 percent while money stock increased by 30 percent. likewise, the u. s. experience between 2008 and 2010 clearly shows that the monetary base soared by 140 percent while, by contrast, money stock increased by only 10 percent. despite the flooding monetary base, japan ’ s consumer price level dipped by 3. 7 percent for the thirteen years by the end of 2010. the u. s. core cpi inflation rate has decreased by more than one percent point despite the increase in monetary base. to sum up, significant increases in the monetary base neither gave rise to an equally significant rise in money stock nor inflation, let alone proportional increases. financial systems would see nakakuki, otani, and shiratsuka ( 2004 ). see friedman ( 1970 ). see bordo and filardo ( 2005 ). bis central bankers ’ speeches provide a key to better understanding the proposition. in light of the japanese experiences, i agree with chairman bernanke on his remark in his scholarly work, saying, “ i doubt that it [ money ] completely explains the financial sector - aggregate output connection. ” 6 without more in - depth understanding of the subtle intricacy underlying in financial systems and credit markets, we would remain less informed of macroeconomy and transmission channels of monetary policy. against the backdrop, i am hoping for more research to proceed on this front. iv. demographic changes and policy response keynes ’ perspective we move on to the second issue on the agenda, demographic changes. in 1937, john maynard keynes gave a lecture titled “ some economic consequences of a declining population. ” he noted that “ in an era of a declining population, … demand tends to be below what was expected and a state of over - supply is less easily corrected. thus a pessimistic atmosphere may ensue. ” 7 by suggesting these views, he posed a question mark on the traditional malthusian view that warns against a population explosion. neoclassical growth theories tend to focus on per capita economic variables, such as per capita gdp and per capita capital stock. this means that the very challenges that japan is currently faced with are left outside the scope of their analysis at the outset. looking ahead, japan is heading into a demographic vortex, by which, i mean, rapid ageing