Accounting for the Boom-Bust Cycle of the Japanese Economy: A Macro-Finance Approach

Ryo Arawatari, Yuta Takahashi and Naoki Takayama

No 773, Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: After the boom-bust cycle, Japan experienced a marked slowdown in economic growth since 1990. Three features stand out: (1) a persistent decline in total factor productivity growth, (2) a sharp and lasting fall in private investment, and (3) an extended period of exceptionally low interest rates. This study develops a macro-finance model designed to account for these interconnected phenomena. The framework emphasizes the role of shifting expectations, risk-premium, and the interaction between financial conditions and real activity. By grounding the analysis in the Japanese experience, the model aims to explain not only the mechanisms behind the bubble’s rise and fall but also the persistence of the stagnation that followed. The broader goal is to clarify how financial booms and busts can leave long-lived imprints on growth trajectories, offering lessons for economies facing similar vulnerabilities today.

Pages: 25 pages
Date: 2025-09
New Economics Papers: this item is included in nep-fdg, nep-inv, nep-mac and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hituec:773

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