The effectiveness of the Japanese forward guidance to deal with the crisis caused by the Covid-19 pandemic : an analysis and an alternative proposal

In this article, the authors discuss the effectiveness of the monetary policies adopted by the Bank of Japan (BoJ) in order to contrast the economic crisis caused by the pandemic of the Covid-19 virus and, in particular, they focus on the forward guidance. This issue is particularly relevant and of immediate and wide importance at a time in which the political decision-makers are taking adequate measures to face what is likely to be the most serious recession of the history. The aim of this paper is to identify a valid fiscal policy alternative to the forward guidance adopted by the Japanese central bank. The authors carry out their own analysis in consideration of the measures already adopted by the central bank and by the government and of the theoretical and of the empirical results, both own and of other scholars and, after have highlighted that this particular policy tool could be inadequate to prevent the country from finding itself in recession and deflation, they suggest that a fiscal stimulus could be more useful for this purpose. In other words, the conclusion that the authors reach is that forward guidance is, in general, not very incisive and that in the current context it may be more appropriate to reduce the overall tax burden on the national consumers and on the national firms.