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Does Japan offer any lessons for the United States?

  • Lynn Elaine Browne
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    In the late 1990s, some observers began to make comparisons between the rapid rise in stock prices then taking place in the United States and the escalation in asset values in Japan in the late 1980s. Did Japan's experience, which was followed by more than a decade of stagnation, contain any cautionary lessons for the United States? With the recent slowing in the pace of U.S. economic activity, the question has been asked more earnestly; and while the prevailing view remains that the United States is not Japan, the denials have been less forceful. ; This article compares Japan's experience during the 1980s with U.S. prosperity in the 1990s, trying to discern the extent of similarities and differences. It then provides an overview of how Japanese policymakers responded once economic conditions began to deteriorate. On balance, the author notes, the conclusions are reassuring. Although similarities exist between Japan's economic performance in the 1980s and U.S. experience in the late 1990s, land values, as well as stock prices, rose very rapidly in Japan. Bank lending backed by land also rose very rapidly. This is a critical difference, she stresses, as the subsequent decline in Japanese land values crippled the Japanese banking system and economic activity generally.

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    Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

    Volume (Year): (2001)
    Issue (Month): ()
    Pages: 3-18

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    Handle: RePEc:fip:fedbne:y:2001:p:3-18:n:3
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    1. Ronald McKinnon & Kenichi Ohno, 2000. "The Foreign Exchange Origins of Japan's Economic Slump and Low Interest Liquidity Trap," Working Papers 052000, Hong Kong Institute for Monetary Research.
    2. Lynn E. Browne, 1992. "Why New England went the way of Texas rather than California," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 23-41.
    3. Joe Peek & Eric S. Rosengren, 1992. "Crunching the recovery: bank capital and the role of bank credit," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 36, pages 151-186.
    4. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 17-51.
    5. Hutchison, M. & McDill, K., 1998. "Are All Banking Crises Alike? The Japanese Experience in International Comparison," Papers 99-02, Economisch Institut voor het Midden en Kleinbedrijf-.
    6. Lynn E. Browne & Karl E. Case, 1992. "How the commercial real estate boom undid the banks," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 36, pages 57-113.
    7. Joe Peek & Eric S. Rosengren, 1998. "Japanese banking problems: implications for Southeast Asia," Working Papers 98-7, Federal Reserve Bank of Boston.
    8. Kenneth R. French & James M. Poterba, 1990. "Were Japanese Stock Prices Too High?," NBER Working Papers 3290, National Bureau of Economic Research, Inc.
    9. Lynn Elaine Browne & Rebecca Hellerstein & Jane Sneddon Little, 1998. "Inflation, asset markets, and economic stabilization: lessons from Asia," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-32.
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