The Boom-Bust Cycle in Japanese Asset Prices

Sami Alpanda

MPRA Paper from University Library of Munich, Germany

Abstract: The Japanese economy experienced a substantial increase and a subsequent crash in land and stock prices in the 1980s and 90s. I use a neoclassical growth model to determine how much of these asset price movements can be accounted for by the observed changes in fundamentals of the Japanese economy; in particular changes in productivity growth and government policy regarding land taxation. In the model, corporations issue land-collateralized debt to reduce their tax liabilities and the government follows a land-taxation policy that is countercyclical to land prices. These features substantially magnify the effect of small shocks by reducing the required return on land. With the model calibrated to Japanese data, I find that the observed changes in fundamentals cannot simultaneously account for the movements in asset prices and macroeconomic variables. In particular, with persistent changes in fundamentals, the observed asset prices can be justified, but at the cost of counter-predicting macroeconomic variables.

Keywords: Japan; land prices; asset pricing; land taxation; general equilibrium (search for similar items in EconPapers)
JEL-codes: C68 E62 G12 O40 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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