2004] BOOK REVIEWS 513

The specific focus of the book on the institutional design features of private
retirement savings schemes is evident from the third chapter onwards. This chapter
discusses how private pension contributions might be mandated and administered. The
financial risks facing families as these contributions accumulate are the topic of Chapter
4, and Chapter 5 considers the role for policy in controlling how the final fund should be
converted into a retirement income stream. The issues covered in this latter chapter
include the regulation of annuity design, and the question of whether or not the
mandating of annuity purchase is a sensible policy response to thin demand and adverse
selection in annuity markets; both of these issues are very relevant to current policy
debate in the UK (see chapter 5 of Department for Work and Pensions, (December
2002), Simplicity, security and choice: Working and saving for retirement, http://www.
dwp.gov.uk/consultations/consult/2002/pensions/index.htm).
The final two substantive chapters of the book consider two factors that affect
private pension schemes during both their accumulation and income paying phases: the
taxation of, and the administrative costs and charges associated with, pension savings
schemes. It is refreshing to have a chapter devoted to the issues of administrative costs
and charges, which generally receive scant attention in the economics literature. This
chapter is also one of several that usefully draw on international evidence, in this case
discussing administrative practices in Chile and Australia, two countries with relatively
mature private pension saving sectors.
An eighth chapter precedes the three useful, informative appendices that complete
the book. In this final chapter the authors restate in summary form some of the more or
less tentative conclusions from Chapters 3 to 6, the core chapters of the book.
It was indicated above that the discussion of the pros and cons of mandatory savings
policies is quite brief, and it is odd that a volume on ‘forced saving’ does not treat these
issues at greater length. For example, there is no assessment of who might lose out as a
result of a policy that forces workers to save against their wishes. Some of the material
in Chapter 4 also seems to sidestep the important issue of whether or not the form of
savings plan being considered is the best one to provide. In this case the discussion of the
costs of attempting to insure a personal, defined contribution plan against fluctuations
in asset values rather begs the question of whether or not individuals would be better
served by group-defined benefit schemes that seem to offer the benefits of risk-pooling
across and within generations.
It is however somewhat harsh to criticize for omissions the authors of a book that
draws together material from the fields of labour economics, consumer theory, public
finance, and from actuarial science and the economics of asset management. The
authors are to be commended for providing an internationally topical guide to many of
the issues that are important in determining the best way to organize a private and
possibly mandatory tier of pension provision. Researchers familiar with the economics
of pensions will find this book a useful reference to both international evidence and
some theoretical issues; students and those less familiar with the field will find it an
accessible and stimulating introductory text.

Institute for Fiscal Studies MATTHEW WAKEFIELD

Japan’s Lost Decade: Policies for Economic Revival. Edited by TIM CALLEN
and JONATHAN D. OSTRY. International Monetary Fund, Washington DC. 2003.
vii þ 271 pp. $28.

It is not often that one is persuaded to read a book because of its cover as much as its
content; this book is a case in point. It is about Japan’s economic situation, which has
been characterized since about 1990 by a protracted recession and financial weakness.
Together with a looming demographic crisis and the overall indebtedness of the
Japanese public sector, these ingredients reinforce one another, and all combine to
provide a sad contrast to the booming 1980s. Explanation and policy prescription is a
serious test for all macroeconomic theories.
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514 ECONOMICA [AUGUST

Concentrating more on policy prescription (as the subtitle reveals) than on recent
history (as is suggested by the main title), the volume is a collective contribution by IMF
research staff. Its policy prescriptions are based mostly on background work under-
taken at IMF (based on their MULTIMOD international econometric model). While pre-
sumably individual authors retain responsibility for the views expressed in their
chapters, it is most likely that the book has been written to reflect a common approach.
It is arranged in 12 self-contained chapters.
Chapter 1 presents an overview, neatly summarizing the various contributions. It
also contains a lucid exposition of the IMF’s philosophy in dealing with the issue. The
IMF favours a policy attack on all fronts: financial clean-up, monetary expansion
centred on installing explicit inflationary targets and increasing the monetary base,
mildly expansionary and targeted fiscal policy, keeping an eye on stabilizing public debt,
social insurance reform while ensuring health provision, and some devaluation and
export-led recovery. While plausible, these policy measures may however be open to
the criticism that the strategy of ‘attacking on all fronts’ conceals a lack of sense of
direction. Since financial cleanup and demand-led expansion may be contradictory,
clear priorities may be important in avoiding policy mistakes such as those associated
with the response to the 1997 Asian crisis.
Chapter 2, ‘Current Issues Facing the Financial Sector’, discusses in detail the
current weaknesses of (mainly) banks, including the bad loans, portfolio imbalances
(too much equity in them) and low profitability, and suggests policy proposals and
regulatory reforms to alleviate them. The chapter on ‘Banks and Credit in Japan’
empirically analyses the reasons for the negative credit growth rate experienced in recent
months. It finds that a number of factors played a role, in particular balance sheet
health and indebtedness both of suppliers (banks) and buyers of debt (corporate sector).
Chapter 4 (‘The Resolution and Collection Corporation and the Market for Distressed
Debt in Japan’) highlights the mechanisms and institutions involved in handling the
non-performing loans of banks and suggests ways for improving them. Chapter 5, on
‘Structural Reforms, Information Technology, and Medium-Term Growth Prospects’,
discusses ways (market liberalization, enhanced regulation and improved incentives for
enterpreneurship) to reverse the productivity slowdown. Chapters 6 (‘Population Aging:
Its Fiscal and Macroeconomic Implications’) and 7 (‘Fiscal Policies in the Demographic
Transition’) analyse the macroeconomic effects of (and the appropriate fiscal policy and
social security response to) the unfavourable demographic prospects. Chapter 8 (‘Fiscal
Policy: An Evaluation of its Effectiveness’) considers more directly the role of fiscal
policy in stimulating aggregate demand, based on econometric structural VAR
methodology. It reaffirms the potency of spending and tax cuts in stabilization, but
also shows that composition of spending matters, and in this respect there is clear scope
for improvement.
The next two chapters (on ‘The Zero-Interest Floor and its Implications for
Monetary Policy in Japan’ and ‘Monetary Policy in a Deflationary Environment’) share
the broad theme, which is about the challenges facing monetary policy when deflation
and recession persist but interest rates are near the zero lowest boundary. Using
simulations, the former argues in favour of the Bank of Japan (BoJ) announcing a tar-
get inflation rate and/or unwinding the cumulative price declines. Mainly on the basis
of VAR econometrics, the latter suggests that base-sustained money growth can be
effective in getting the economy out of the deflationary spiral. Chapter 11 (‘The
Yen–Dollar Rate: Have Interventions Mattered?’) analyses the effectiveness of exchange
rate interventions conducted by the Bank of Japan during 1995–9 and comes to the
somewhat surprising conclusion that, though sterilized, such interventions were
relatively effective. It also finds that what motivated the BoJ in its interventions was
mainly a desire to avert big swings in the yen in any direction. Finally, Chapter 12 (‘The
Impact of Japanese Economic Policies on the Asia Region’) examines the effects of
various Japanese policy scenarios on the wider region.
The book is a welcome contribution towards more careful and detailed analysis of
developments in Japan and policy prescriptions. It contains quite thorough (and at
times complementary) discussions of a handful of areas in macroeconomic and finance.
The individual chapters are lucid and informative, based on careful reviews of literature,

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2004] BOOK REVIEWS 515

overviews of developments in Japan and simulations or econometric modelling. The

balance between reviews and original work (roughly equal) is about right for a mainly
policy-oriented volume. Minor complaints might point at somewhat apocryphal ex-
planation of aspects of simulations (e.g. pp. 122–3 or 187 n.).
Furthermore, the reader cannot help thinking that at places the various analyses
formally make plainly commonsensical points and prescriptions. Still, the (paperback)
cover of the book is as appetizing as the subject matter, and inevitably sets high
standards of judgement. The book comfortably passes the test, and should be read by
anyone seriously interested in economic developments in Japan.

London Metropolitan University CHRIS TSOUKIS

r The London School of Economics and Political Science 2004