Asset Price Bubble In Japan In The 1980s

7881 words - 32 pages

IMES DISCUSSION PAPER SERIES
INSTITUTE FOR MONETARY AND ECONOMIC STUDIES
BANK OF JAPAN
C.P.O BOX 203 TOKYO 100-8630 JAPAN
You can download this and other papers at the IMES Web site:
http://www.imes.boj.or.jp
Do not reprint or reproduce without permission.
Asset Price Bubble in Japan in the 1980s: Lessons for Financial and Macroeconomic Stability
Shigenori Shiratsuka
Discussion Paper No. 2003-E-15

NOTE: IMES Discussion Paper Series is circulated in order to stimulate discussion and comments. Views expressed in Discussion Paper Series are those of authors and do not necessarily reflect those of the Bank of Japan or the Institute for Monetary and Economic Studies.

______________________________________________________________________ This paper is prepared for the IMF/BIS Conference on Real Estate Indicators and Financial Stability, held at IMF Headquarters in Washington, D.C. during October 27-28, 2003. This paper is based on my past research with many co-authors, including Kunio Okina, Makoto Saito, Tokiko Shimizu, and Masaaki Shirakawa. I would like to thank the staff of the Institute for Monetary and Economic Studies of the Bank of Japan for their helpful comments. The views expressed here are mine and do not necessarily reflect the official views of either the Bank of Japan or the Institute for Monetary and Economic Studies.
IMES Discussion Paper Series 2003-E-15
December 2003
Asset Price Bubble in Japan in the 1980s: Lessons for Financial and Macroeconomic Stability
Shigenori Shiratsuka*
Abstract This paper reviews the implications of asset price fluctuations on financial and
macroeconomic stability, based on Japan's experience of the asset price bubble.
Japan's experience of asset price bubble is characterized by euphoria, that is,
excessively optimistic expectations with respect to future economic fundamentals,
which lasted for several years and then burst. Under such circumstances,
policymakers are unlikely to take an appropriate policy response without
evaluating whether asset price hikes are euphoric or not, and forecast a correct path
for the potential growth rate. In so doing, it is deemed important to assess the
sustainability of financial and macroeconomic stability.
Keywords: Asset price bubble; Financial stability; Macroeconomic stability,
Sustainability.
JEL Classification Codes: E31, E44, E58, E63, G18
* Deputy Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of
Japan (E-mail:shigenori.shiratsuka@boj.or.jp)

1
I. Introduction In this paper I discuss implications of asset price fluctuations for financial and economic
stability, based on Japan's experience in the late 1980s.
A look back over Japan's experience since the late 1980s shows that the
emergence and bursting of the bubble played an important role in economic fluctuations
in this period. This experience clearly indicates that both financial and
macroeconomic instability is closely related to large fluctuations in asset prices, and
raises...

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