DP2436 | The Morning After: Explaining The Slowdown In Japanese Growth In The 1990s

Author(s)

Publication Date

28/04/2000

JEL Code(s)

Keyword(s)

Programme Area(s)

Abstract

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.