Japan's lost decade(s) is a nightmare scenario for the Eurozone and the US. Japan's recession is

an example of the liquidity trap. formulate short policy memo to explain the Japanese

situation. Include the following in your report:

What caused the Japanese recession? Identify the key events/reasons?

What is a liquidity trap?

How did the Bank of Japan initially respond? Did the bank's policy change during the

recession?

What are possible solutions? Describe them briely!

Include graphs of the key macro variables (at least gdp growth, inlation, unemployment)

and all variables that are relevant for your analysis.

You may use any source available (but include your references!). Possible starting points are1

Krugman, Paul (1998), "It's Baaack! Japan's Slump and the Return of the Liquidity Trap,"

Brookings Papers on Economic Activity 1998:2, 137187