##irable. if economic swings amplify significantly, there could be adverse effects, such as inefficient resource allocation. the bank may then be rushed into tightening its monetary policy, possibly resulting in an interruption in the course of the reversal of hysteresis. in this situation, prices might rise in the short run, but this will not be stable over the long run. in realizing the reversal of hysteresis, focus should not be placed solely on tightening the output gap, but rather on maintaining moderately tight supply - demand conditions for as long as possible. hall ( 2014 ) expresses the view that the extent to which and the time required for hysteresis to be dissipated differs for each element of the supply side of the economy, whether it is tfp, capital accumulation, unemployment, or the labor force participation rate. kocherlakota ( 2014 ) - expressing agreement with hall's view - - notes that much of the hysteresis can be reversed ultimately, referring to the fact that hysteresis resulting from the great depression was eliminated under vigorous demand during world war ii. second, it is also necessary to pay due attention to the stability of the financial system. in an environment where accommodative financial conditions have been maintained over a long period, the risk of an accumulation of financial imbalances will be heightened. according to the bank's assessment presented in the april 2018 financial system report, although japan's financial system as a whole is not showing any signs of overheating, some indicators, such as the lending attitudes of financial institutions, are very close to a state of overheating. furthermore, if the low interest rate environment continues and downward pressure on financial institutions'profits becomes prolonged, the functioning of financial intermediation may be undermined. under the " yield curve control, " which the bank adopts as one of its policy tools, as inflation expectations rise and the long - term growth potential of the economy strengthens in accordance with the reversal of hysteresis, monetary easing effects will be enhanced through a rise in the natural rate of interest and a decline in real interest rates. 7 when conducting monetary policy in the future, the bank - - while taking account of the changes in the external environment - - should consider without prejudgment the most appropriate policy so as to avoid any serious distortion in the economic and financial environment. upward pressure on wages and prices can be increased by appropriately addressing

##lakota. 2014. " discussion of paper :'quantifying the lasting harm to the u. s. economy from the financial crisis,'" a paper presented at the national bureau of economic research macroeconomics conference. reifschneider, dave, william wascher, and david wilcox. 2013. " aggregate supply in the united states : recent developments and implications for the conduct of monetary policy. " board of governors of the federal reserve system finance and economics discussion series no. 2013 - 77. yellen, janet l. 2014. " what the federal reserve is doing to promote a stronger job market, " a speech delivered at the national interagency community reinvestment conference, chicago, illinois, march 14. - - - - - -. 2016. " macroeconomics research after the crisis, " a speech delivered at 60th annual economic conference sponsored by the federal reserve bank of boston, boston, massachusetts, october 14. research and statistics department, bank of japan. 2018. a summary of the conference co - hosted by the center for advanced research in finance ( carf ), the university of tokyo, and the research and statistics department, bank of japan, entitled " new developments in macroeconomic analysis : linkage between business cycle and growth trend, " released on march 30 ( available only in japanese ). hysteresis and sluggish growth in wages and prices : the case study of japan presented at the 30th villa mondragone international economic seminar june 25, 2018 makoto sakurai masahiko kataoka member of the policy board director, secretariat of the policy board chart 1 real gdp growth 1985 - 1999 2000 - 2017 2007 = 100 1991 = 100 japan us uk france source : oecd. chart 2 labor force participation rate labor force participation rate s. a., % discouraged workers 1. 6 mil. 1. 4 1. 2 1. 0 0. 8 0. 6 0. 4 0. 2 0. 0 91 93 95 97 99 01 03 05 07 09 11 13 15 17 1 2 1 3 1 4 1 5 1 6 note : discouraged workers are people who are not seeking employment because they feel that they have no prospect of finding a suitable job. source : ministry of health, labour and welfare. 1 7 chart 3 non - regular employment non - regular employment ratio1 % non - regular employment due to economic reasons2 4. 0 mil. 3. 5 3. 0 2. 5 2. 0 1