Sunday, May 3, 2015

Japan's cash economy and the liquidity trap

I downloaded a trial copy of the Krugman and Wells introductory macro book, and I plan on doing another post on their list of principles of economics (which are a bad mindset to have in the information equilibrium picture ... so that should be fun). However, this bit of information I didn't know about caught my eye:
Japan, say financial experts, is still a “cash society.” Visitors from the United States or Europe are surprised at how little use the Japanese make of credit cards and how much cash they carry around in their wallets. Yet Japan is an economically and technologically advanced country and, according to some measures, ahead of the United States in the use of telecommunications and information technology. So why do the citizens of this economic powerhouse still do business the way Americans and Europeans did a generation ago? The answer highlights the factors affecting the demand for money. 
One reason the Japanese use cash so much is that their institutions never made the switch to heavy reliance on plastic. For complex reasons, Japan’s retail sector is still dominated by small mom-and-pop stores, which are reluctant to invest in credit card technology. Japan’s banks have also been slow about pushing transaction technology; visitors are often surprised to find that ATMs close early in the evening rather than staying open all night.
Krugman and Wells Macroeconomics p452

Since the low inflation economy/liquidity trap in the information transfer model is related to a high currency to NGDP ratio (actually high log M/log NGDP), this could be evidence for why Japan entered the liquidity trap in the 90s -- before the US and EU.


  1. Interesting. Another post I missed the 1st time around.

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