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Macroeconomics
Fujiwara Laboratory
Understanding the Economy as a "System"
Rather than viewing the economy as a simple collection of data points, I seek to understand it as a complex, interconnected system. This systems-based perspective allows me to examine the causes of economic fluctuations, uncover the driving forces behind them, and consider what kinds of policy responses are most effective.
Economic movements are shaped by the interaction of many interrelated factors. Without a holistic understanding of these dynamics, effective policymaking is difficult. For instance, when discussing whether a weaker yen is good or bad for Japan, it is essential to examine the causes of the depreciation. Without such context, one cannot offer accurate assessments or appropriate policy advice.
Furthermore, the policy-economy relationship is bidirectional. Policies influence economic conditions, but economic realities also shape the policy environment. These feedback loops mean that analyzing raw data alone is not enough to assess the true impact of a policy.
My research currently focuses on two key themes:
1.International Finance and Its Impact on Industrial Structure and the Macroeconomy
Over the past decade, the yen has depreciated by more than half against the dollar. This has enhanced the competitiveness of Japan’s manufacturing and export sectors
but also increased the cost of imports, raising prices for intermediate and consumer goods and worsening Japan’ s terms of trade. Exchange rate fluctuations, therefore, have broad macroeconomic implications.
My research aims to clarify:
(1)the long-term determinants of real exchange rates,(2)the mechanisms by which globalization transforms industrial structures over time, and (3)the effects of currency fluctuations on industrial composition and macroeconomic outcomes.
Figure8:Model with observed productivities in traded and non-traded sectors and an endogenous trades sector wedge
Source: Devereux, Fujiwara and Granados, 2025,“ Productivity and Wedges: Economic Convergence and the Real Exchange Rate.”
2.Structural Change and the Future of the Japanese Economy
Economic development brings structural change: agriculture declines, manufacturing rises, and eventually services become dominant. Yet this progression varies across countries. In some advanced economies like Japan and Germany, manufacturing remains strong despite the rise of services. In contrast, countries like India have seen
services expand rapidly before manufacturing fully matures.
My research investigates the causes of these differences. Understanding them will help forecast Japan’ s future industrial landscape and support the development of more effective industrial policies.
Figure2.PREMATURE DEINDUSTRIALIZATION UNDER THE BAUMOL EFFECT:NUMERICAL ILLUSTRATION
Source: Fujiwara and Matsuyama, 2024,“A Technology-Gap Model of Premature Deindustrialization.” American Economic Review.
There are many things we take for granted that may, in fact, be incorrect. For example, few people question the idea that "when the inflation rate rises, the central bank raises interest rates." At the same time, the explanation that "when the inflation rate rises, interest rates also rise—namely, nominal interest rate = real interest rate + inflation rate" is also generally accepted without much resistance. However, when we try to reconcile these two ideas, confusion often arises. It starts to seem as though raising the nominal interest rate would actually cause the inflation rate to rise.
Admittedly, I myself did not fully understand this when I first joined the Bank of Japan. Even such seemingly simple matters must be considered within the broader framework of the economy as a system—specifically, in the context of dynamic general equilibrium models that take into account price stickiness. I believe that viewing the economy as a system is extremely valuable for developing better policies.
Member
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- Visiting Professor
Ippei FUJIWARA
Research Area: Macroeconomics, International Finance - Visiting Professor
