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Non-performing loans, prospective bailouts, and Japan's slowdown

  • Barseghyan, Levon

The delay in the government bailout of the financial sector played a key role in Japan's slowdown during the 1990s and early 2000s. This argument is articulated in a general equilibrium model in which the government provides deposit insurance to the financial sector. The existence of non-performing loans, combined with a delay in the bailout, leads to a persistent decline in economic activity. Consistent with Japan's experience, the decline in output is caused not only by a fall in investment, but also by a decline in labor and total factor productivity.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 57 (2010)
Issue (Month): 7 (October)
Pages: 873-890

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Handle: RePEc:eee:moneco:v:57:y:2010:i:7:p:873-890
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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