Working Paper: NBER ID: w7350
Authors: Tamim Bayoumi
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.
Keywords: Japanese economic slump; VAR analysis; fiscal policy; monetary policy; financial intermediation
JEL Codes: E32; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fiscal policy measures (E62) | economic activity (E20) |
| low interest rates (E43) | economic activity (E20) |
| overinvestment (G31) | economic growth (O49) |
| investment levels (F21) | economic growth (O49) |
| consumer saving behavior (D12) | economic growth (O49) |
| changes in asset prices (G19) | bank lending (G21) |
| bank lending (G21) | economic activity (E20) |