## Managing Upheavals

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**Canonical URL:** [Managing Upheavals](https://www.imf.org/-/media/files/publications/fandd/article/2021/december/book-gaspar.pdf)

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### Context and scope
- Review of Masaaki Shirakawa’s Tumultuous Times: Central Banking in an Era of Crisis (Yale University Press, New Haven, CT, 2021, 536 pp., $40.00).
- Covers Shirakawa’s four decades at the Bank of Japan (BOJ), from 1972 to 2013.
- Examines Japan’s macroeconomic trajectory: the fading post-war economic miracle, a bubble economy that inflated and burst, and ensuing “lost decades.”
- Highlights external pressures, including the global financial crisis and the economic rise of China: in 2000, China’s economy was one-quarter the size of Japan’s, but by 2015 it was twice as big.

### Monetary policy constraints and innovations
- Monetary policy limited by the shadow of zero rates:
  - The shadow of zero rates was already apparent by 1995.
  - Since 1999, monetary policymaking in Japan has been dominated by the zero lower bound.
- Consequences and responses:
  - The zero lower bound forced the BOJ to explore unconventional monetary policy instruments and expand its balance sheet.
  - Japan served as an early guide for policy initiatives later followed by many other advanced economy central banks.
- The reviewer highlights Shirakawa’s insider account of central bank policy decisions and candid recounting of interactions with the government and Parliament, including a lengthy chapter on the process that led to a joint statement by the government and the BOJ and a section titled “My last month in office.”

### Political economy and demographics
- Political constraints on reform:
  - Shirakawa reflects on political and social relevance of demographics: the young Shirakawa overlooked these; the older Shirakawa recognizes that as the electorate ages, a “gray hair democracy” has emerged, making reform more difficult.
- Two of the lengthiest chapters reflect anxieties of a central bank governor operating in a highly political environment.

### Central banking mandate and priorities
- Key argument from Shirakawa (as emphasized by the reviewer):
  - The first goal of the central bank is financial stability, even before price stability.
  - This challenges the conventional view that price stability should be the primary goal of monetary policy.
- The reviewer’s favored chapter: “What Should We Expect of the Central Bank?”—examines theory and practice of central banking beyond monetary policy.

### Readership and assessment
- The book is composed of short, self-contained chapters offering insightful information.
- Recommended audience: readers interested in central banking in a country with a declining population, low growth, and low interest rates.
- Overall verdict: Tumultuous Times is described as indispensable reading for those interests.

### Notable quotation
- Milton Friedman: “Monetary theory is like a Japanese garden. It has esthetic unity born of variety; an apparent simplicity that conceals a sophisticated reality; a surface view that dissolves in ever deeper perspectives.” The reviewer applies this observation to Shirakawa’s book.

*Review by VITOR GASPAR, director, IMF Fiscal Affairs Department*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2021/december/book-gaspar.pdf_