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

Author(s):	Tamim Bayoumi
Publication Date:	April 2000
Keyword(s):	Economic Slump, Financial Intermediation
JEL(s):	E32, E44
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2436

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.