Japan's Great Stagnation: Financial and Monetary Policy Lessons for Advanced Economies (CESifo Seminar Series)

Japan's Great Stagnation: Financial and Monetary Policy Lessons for Advanced Economies (CESifo Seminar Series)

Language: English

Pages: 290

ISBN: 0262083477

Format: PDF / Kindle (mobi) / ePub


After experiencing spectacular economic growth and industrial development for much of the postwar era, Japan plunged abruptly into recession in the early 1990s and since then has suffered a prolonged period of economic stagnation, from which it is only now emerging. Japan's malaise, marked by recession or weak economic activity, commodity and asset price deflation, banking failures, increased bankruptcies, and rising unemployment, has been the most sustained economic downturn seen in the industrial world since the 1930s. In Japan's Great Stagnation, experts on the Japanese economy consider key questions about the causes and effects of Japan's prolonged period of economic underperformance and what other advanced economies might learn from Japan's experience. They focus on aspects of the financial and banking system that have contributed to economic stagnation, the role of monetary policy, and the importance of international financial factors--in particular, the exchange rate and the balance of payments.Among the topics discussed are bank fragility and the inaccuracy of measuring it by the "Japan premium," the consequences of weak banking regulation, the controversial policy of "quantitative easing," and the effectiveness of currency devaluation for fighting deflation. Taken together, the contributions demonstrate the importance of a sound financial sector in fostering robust growth and healthy economies--and the enormous economic costs of a dysfunctional financial system.Contributors:Yoichi Arai, Robert Dekle, Zekeriya Eser, Eiji Fujii, Kimie Harada, Takeo Hoshi, Michael M. Hutchison, Takatoshi Ito, Ken Kletzer, Nikolas Müller-Plantenberg, Kunio Okina, Joe Peek, Eric S. Rosengren, Shigenori Shiratsuka, Mark M. Spiegel, Frank Westermann, Nobuyoshi Yamori

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29 A generalized increase in property prices in Europe, such as Ireland, Spain, and the Netherlands (figure 1.9), and other economies such Australia and the United States, has raised the specter of future financial instability and other economic problems should there be a sharp housing price correction. If these price rises are unrelated to fundamentals, meaning price ‘‘bubbles,’’ then at some point corrections will occur. Similarly, if the rapid rise in prices is related to extremely low interest

market, the Bank of Tokyo Mitsubishi. The referenced banks of the euro-yen LIBOR comprised sixteen banks, five of them being Japanese banks (the Bank of Tokyo Mitsubishi, Sumitomo Mitsui Banking Co., Mizuho Corporate Bank, UFJ Bank, and the Norinchukin Bank). Because the highest four and the lowest four banks are eliminated from the average calculation of the LIBOR, it can be safely assumed that the LIBOR is not influenced by the Japan premium. 4. We wish to acknowledge Mr. Saeki Nobukazu of

Kletzer Figure 3.4 Consumption and investment–GDP ratios, including GDP growth rate. smaller contraction in household consumption as a share of GDP and could help sustain consumption growth. Hayashi and Prescott (2002) argue that regulatory changes in the 1980s reduced the incentives of households to supply labor, leading to a rise in leisure consumption by about 20 percent. If consumption of goods and leisure are complements, then these changes could raise the share of consumption in output.

lease losses. They find that bank exams affect the accuracy of financial information released to the public. In the absence of regulatory exams, banks underestimate the share of nonperforming loans in their balance sheet. It should be acknowledged that regulations inducing full disclosure would not necessarily be optimal. Banks could respond to disclosure requirements in a number of dimensions, some of which would likely be unintended. For example, a bank wishing to avoid releasing information to a

information about potential borrowers. This study utilizes a detailed micro panel data set that identifies loans by individual Japanese banks to individual Japanese firms to investigate the behavior of secondary banks in Japan during the 1990s. We first document that these banks tended to evergreen loans, with the probability of the bank increasing loans to a firm increasing the weaker is the firm, the weaker is the bank, the greater is the exposure of the bank to the firm, and if the bank has a

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