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Banking Crises and “Japanization†: Origins and Implications

Author

Listed:
  • Masahiro Kawai

    (Asian Development Bank Institute (ADBI))

  • Peter Morgan

Abstract

Japan’s “two lost decades†perhaps represent an extreme example of a weak recovery from a financial crisis, and are now referred to as “Japanization.†More recently, widespread stagnation in advanced economies in the wake of the global financial crisis led to fears that Japanization might spread to other countries. This study examines the dimensions of Japanization—including low trend growth, debt deleveraging, deflation, and massive increases in government debt—and analyzes their possible causes—including inadequate macroeconomic policy responses, delayed banking sector restructuring, inadequate corporate investment, loss of industrial competitiveness, a slowdown in total factor productivity (TFP) growth due to excessive regulation and economic rigidities, and an aging society. The study compares Japan’s experience with three other groups that experienced banking crises in the 1990s—developed economies; emerging Asian economies and Latin American economies. Japan’s experience is found to parallel most closely that of other Asian economies that experienced unusually high growth rates of gross domestic product (GDP) and credit before their crises. The study also develops an econometric model of long-term growth rates that uses measures of net investment, the share of the aged in the population, and occurrence of banking crises in addition to traditional explanatory variables. It finds that very low rates of consumer price index (CPI) inflation (or deflation) and net investment, the lack of openness to foreign direct investment, and an aged population explain much of Japan’s slowdown.

Suggested Citation

  • Masahiro Kawai & Peter Morgan, 2013. "Banking Crises and “Japanization†: Origins and Implications," Governance Working Papers 23509, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:govern:23509
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
    3. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
    4. Kazuo Ueda, 2012. "Deleveraging and Monetary Policy: Japan since the 1990s and the United States since 2007," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 177-202, Summer.
    5. Masahiro Kawai, 2005. "Reform of the Japanese banking system," International Economics and Economic Policy, Springer, vol. 2(4), pages 307-335, December.
    6. Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 822-832.
    7. Toshitaka Sekine, 1999. "Firm Investment and Balance-Sheet Problems in Japan," IMF Working Papers 99/111, International Monetary Fund.
    8. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
    9. Koichi Hamada & Yasushi Okada, 2009. "Monetary and International Factors behind Japan's Lost Decade," NBER Chapters,in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR National Bureau of Economic Research, Inc.
    10. Robert J. Barro, 2001. "Economic Growth in East Asia Before and After the Financial Crisis," NBER Working Papers 8330, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Japan; lost decades; Japanization; global financial crisis; macroeconomic policy responses; banking crisis;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises

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