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Japan's Financial Crisis and Economic Stagnation

  • Takeo Hoshi
  • Anil K. Kashyap

We survey the macroeconomic stagnation and financial problems in Japan. The financial sector assessment includes separate analyses of the commercial banks, the life insurance companies and the government's fiscal investment and loan program (FILP). We estimate that the Japanese taxpayer will have to pay at least another 100 trillion yen (20% of GDP) to cover financial system losses. We explain how the current dysfunctional Japanese banking system misallocates funds by keeping many insolvent firms in business. These inefficient firms crowd out potentially profitable ones and worsen macroeconomic stagnation. A sustained macroeconomic recovery requires serious restructuring aimed at stopping this cycle.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/089533004773563412
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 18 (2004)
Issue (Month): 1 (Winter)
Pages: 3-26

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Handle: RePEc:aea:jecper:v:18:y:2004:i:1:p:3-26
Note: DOI: 10.1257/089533004773563412
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  1. Yoichi Arai & Takeo Hoshi, 2004. "Monetary Policy in the Great Recession," Discussion papers 04024, Research Institute of Economy, Trade and Industry (RIETI).
  2. Sekine, Toshitaka & Kobayashi, Keiichiro & Saita, Yumi, 2003. "Forbearance Lending: The Case of Japanese Firms," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 69-92, August.
  3. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-77, December.
  4. Kazuo Ogawa, 2003. "Financial Distress and Employment: The Japanese Case in the 90s," NBER Working Papers 9646, National Bureau of Economic Research, Inc.
  5. Takeo Hoshi & Anil Kashyap, 1999. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Working Papers 7250, National Bureau of Economic Research, Inc.
  6. Mitsuhiro Fukao, 2003. "Financial Sector Profitability and Double-Gearing," NBER Chapters, in: Structural Impediments to Growth in Japan, pages 9-36 National Bureau of Economic Research, Inc.
  7. Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 35.
  8. Smith, David C., 2003. "Loans to Japanese borrowers," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 283-304, September.
  9. Magnus Blomström & Jennifer Corbett & Fumio Hayashi & Anil Kashyap, 2003. "Structural Impediments to Growth in Japan," NBER Books, National Bureau of Economic Research, Inc, number blom03-1.
  10. Kenneth N. Kuttner & Adam S. Posen, 2001. "The Great Recession: Lessons for Macroeconomic Policy from Japan," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 93-186.
  11. Gary R. Saxonhouse & Robert M. Stern, 2003. "The Bubble and the Lost Decade," The World Economy, Wiley Blackwell, vol. 26(3), pages 267-281, 03.
  12. Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582481, June.
  13. Takero Doi & Takeo Hoshi, 2002. "Paying for the FILP," NBER Working Papers 9385, National Bureau of Economic Research, Inc.
    • Takero Doi & Takeo Hoshi, 2003. "Paying for the FILP," NBER Chapters, in: Structural Impediments to Growth in Japan, pages 37-70 National Bureau of Economic Research, Inc.
  14. Flath, David, 2000. "The Japanese Economy," OUP Catalogue, Oxford University Press, number 9780198775034, March.
  15. Anil K. Kashyap, 2002. "Sorting Out Japan's Financial Crisis," NBER Working Papers 9384, National Bureau of Economic Research, Inc.
  16. David C. Smith, 2003. "Loans to Japanese borrowers," International Finance Discussion Papers 769, Board of Governors of the Federal Reserve System (U.S.).
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