There will probably never be a last word on the Japanese financial catastrophe of the 1990s but Richard Koo's book may be the most significant analysis ever published. Agree or disagree, any analyst of the current United States situation must consider Koo's arguments. - Lawrence H. Summers Richard Koo does it again. By presenting a unique theory regarding the great Depression and Japan's recession of the last 15 years. Koo offers a new understanding of current problems in the U.S. and other economies. With many pearls of analytical wisdom, The Holy Grail of Macroeconomics: Lessons from Japan's great recession is a must-read for economist, policymakers and individual investors alike. - Nobuyuki Idei
Richard Koo's pioneering work on balance-sheet recession has been invaluable in understanding the difficulty faced by Japan's economy and monetary authorities during the past 15 years. In this book, he has shown that the U.S. Great Depression was also driven by the same balance sheet concerns of the private sector, indicating that this kid of recession can happen to any post-bubble economy. I sincerely hope that the lessons contained in this book are put to good use in fighting similar recessions elsewhere, including the U.S. subprime crisis. - Yasushi Mieno
The Holy Grail of Macroeconomics presents a brilliant and original framework for understanding-and overcoming-a post-bubble economic crisis such as the one the world faces today. By discrediting the conventional view that monetary policy is effective in combating a post-bubble recession, Richard Koo has made an invaluable contribution to economic theory and at just the right time. Only fiscal stimulus on a very large scale canprevent a severe global slump in the years ahead. This is an important book. It should be required reading for economic policy makers all around the world. - Richard Duncan
Japan's "Great Recession" lasted from approximately 1992 - 2007 and finally provided the economics profession with the necessary background to understand what actually happened during the US recession of the 1930s. The discoveries made, however, are so far-reaching that a large portion of economics literature will have to be modified to accommodate another half to the macro economic spectrum of possibilities that conventional theorists have overlooked.
In particular, Japan's Great Recession showed that when faced with a massive fall in asset prices, companies typically jettison the conventional goal of profit maximization and move to minimize debt in order to restore their credit ratings. This shift in corporate priority, however, has huge theoretical as well as practical implications and opens up a whole new field of study. For example, the new insight can explain fully the precise mechanism of prolonged depression and liquidity trap which conventional economics - based on corporate profit maximization - has so far failed to offer as a convincing explanation.
The author developed the idea of yin and yang business cycles where the conventional world of profit maximization is the yang and the world of balance sheet recession, where companies are minimizing debt, is the yin. Once so divided, many varied theories developed in macro economics since the 1930s can be nicely categorized into a single comprehensive theory, i.e., the Holy Grail of macro economics
The policy implication of this new discovery is immense in that the conventional aversion to fiscal policy in favor of monetary policy will have to be completely reversed when the economy is in the yin phase.
Thetheoretical implications are also immense in the sense that the economics profession will no longer have to rely so much on various rigidities to explain recessions that have become the standard practice within the so-called New Keynesian economics of the last twenty years.
