Supplied Summary: Is the recovery from the global financial crisis now secured? A strikingly similar crisis that stalled Japan's growth miracle two decades ago could provide some clues. This paper explores the parallels and draws potential implications for the current global outlook and policies. Japan's experiences suggest four broad lessons. First, green shoots do not guarantee a recovery, implying a need to be cautious about the outlook. Second, financial fragilities can leave an economy vulnerable to adverse shocks and should be resolved for a durable recovery. Third, well-calibrated macroeconomic stimulus can facilitate this adjustment, but carries increasing costs. And fourth, while judging the best time to exit from policy support is difficult, clear medium-term plans may help.
Later: An editorial in the Sunday, January 3, 2010 New York Times takes up on the above. The Times Editor concludes, "The White House is now pushing another mini-stimulus plan for next year. Chances are it will need to do a lot more to push reform and boost the economy. If there is an overarching lesson from Japan’s lost decade, it is that half measures don’t pay."