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Asset Price Fluctuations, Structural Adjustments, and Sustained Economic Growth: Lessons from Japan's Experience since the Late 1980s

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  • Okina, Kunio

    (Institute for Monetary and Econ Studies, Bank of Japan)

  • Shiratsuka, Shigenori

    (Institute for Monetary and Econ Studies, Bank of Japan)

Abstract

In this paper, we examine implications of asset price fluctuations and resultant structural adjustments on sustained economic growth, based on Japan's experience since the latter half of the 1980s. In doing so, we offer the view that the protracted economic stagnation in Japan can be seen as a result of the incomplete economic adjustments to significant changes in relative prices, in part triggered by the bursting of the asset price bubble. Such changes in relative prices include movements in both intertemporal and cross-sectional dimensions, which interacted crucially to lower the economy's trend growth. This aspect of Japan's asset price bubble, with its consequences for structural adjustments since the 1990s, is important because it illustrates the specific environment in which the Bank of Japan has to conduct monetary policy: namely, not a standard stabilization policy around a stable growth trend. Rather, it has operated in an environment of unanswered policy management questions coupled with hampered sustained growth.

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Bibliographic Info

Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 22 (2004)
Issue (Month): S1 (December)
Pages: 143-167

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Handle: RePEc:ime:imemes:v:22:y:2004:i:s1:p:143-167

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Cited by:
  1. Agarwal, Sumit & Chomsisengphet, Souphala & Liu, Chunlin & Ghon Rhee, S., 2007. "Earnings management behaviors under different economic environments: Evidence from Japanese banks," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 429-443.

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