Heisei Boom: Causes and Policy Responses

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The Heisei Boom: Causes and Policy Responses Felipe Villamarin Lafaurie Código: 200816859 Universidad de los Andes Abstract: Since the mid 1950s, Japan has experienced a very high level of economic growth that has only been hampered by asset price bubbles of various kinds. Clearly the most important asset price bubble suffered by Japan happened at the end the 1980s. When examining the emergence of the Heisei boom or the ‘Bubble Economy’ many different factors present themselves as contributors to its existence. In the first place, the Plaza Accord between the G-5 nations seems to be the defining event that set in motion the bubble. The Accord led the Bank of Japan to loosen monetary policy in order to stimulate domestic demand for U.S. products as well as a precautionary measure to protect the vast export sector of the economy hit by the Yen’s appreciation. This loose monetary policy did not lead to consumer price index inflation as was expected by theory, but to asset price inflation. On the other hand, through deregulation and taxes imperfections, the way the banking and real-estate sector functioned posed many contributing factors to the creation of the bubble. With the bursting of the bubble in the beginning of the 1990s the Bank of Japan alongside the government undertook all the countercyclical measures it could in order to rescue the country from recession, deflation and very high levels of unemployment. The Heisei Boom: Causes and Policy Responses Since the end of the WWII, the Japanese economy has been characterized by a developmental state growth that placed the economy as one of the world’s biggest economy in the 1980’s. Nevertheless, during the post-war period the Japanese economy suffered from three distinct asset price bubbles from which the Heisei boom, in the late 1980s to early 1990s, was clearly the most important in terms of the
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