The Japanese political class has averted a full-fledged deflationary cleansing of their economy by engaging in endless rounds of Keynesianfiscal stimulus and loose monetary policy.
But the country was running a budget surplus before that, and a continuing tight fiscalpolicy has not only not caused a Keynesian disaster, but has accompanied a strong rebound.
Indeed, the models that I have built support the use of policy rules, such as the Taylor rule for monetary policy or the automatic stabilizers for fiscalpolicy, which are the polar opposite of Keynesian discretion.
Keynesian economists argue that the correct policy response is to boost government spending (G) through fiscal stimulus, allowing consumers and businesses time to adjust and recover, and to gradually remove that stimulus as the economy returns to its normal growth trajectory.