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The Morning After: Explaining The Slowdown In Japanese Growth In The 1990s

  • Bayoumi, Tamim

This paper uses a VAR to investigate four possible explanations of the extended slump in Japanese economic activity over the 1990s: the absence of bold and consistent fiscal stimulus; the limited room for expansionary monetary policy due to a liquidity trap; overinvestment and debt overhang; and disruption of financial intermediation. The results indicate that all of these factors played a role, but that the major explanation is disruption in financial intermediation, largely operating through the impact of changes in domestic asset prices on bank lending.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2436.

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Date of creation: Apr 2000
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Handle: RePEc:cpr:ceprdp:2436
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  1. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
  2. Ogawa, K. & Kitasaka, S.-I., 2000. "Bank Lending in Japan: its Determinants and Macroeconomic Implications," ISER Discussion Paper 0505, Institute of Social and Economic Research, Osaka University.
  3. Romer, Christina D., 1992. "What Ended the Great Depression?," The Journal of Economic History, Cambridge University Press, vol. 52(04), pages 757-784, December.
  4. Ogawa, K. & Suzuki, K., 1996. "Land Value and Corporate Investment: Evidence from Japanese Panel Data," ISER Discussion Paper 0408, Institute of Social and Economic Research, Osaka University.
  5. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  6. Edward J. Lincoln, 1998. "Japan's Financial Problems," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 347-385.
  7. Kwon, Eunkyung, 1998. "Monetary Policy, Land Prices, and Collateral Effects on Economic Fluctuations: Evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 12(3), pages 175-203, September.
  8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  9. Robert J. Gordon, 1988. "Back to the Future: European Unemployment Today Viewed from America in 1939," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 271-312.
  10. Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 35.
  11. Ogawa, Kazuo & Kitasaka, Shin-ichi & Yamaoka, Hiroshi & Iwata, Yasuharu, 1996. "Borrowing Constraints and the Role of Land Asset in Japanese Corporate Investment Decision," Journal of the Japanese and International Economies, Elsevier, vol. 10(2), pages 122-149, June.
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