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Banking Crises and “Japanization†: Origins and Implications

Author

Listed:
  • Masahiro Kawai

    (Asian Development Bank Institute (ADBI))

  • Peter Morgan
Abstract
Japan’s “two lost decades†perhaps represent an extreme example of a weak recovery from a financial crisis, and are now referred to as “Japanization.†More recently, widespread stagnation in advanced economies in the wake of the global financial crisis led to fears that Japanization might spread to other countries. This study examines the dimensions of Japanization—including low trend growth, debt deleveraging, deflation, and massive increases in government debt—and analyzes their possible causes—including inadequate macroeconomic policy responses, delayed banking sector restructuring, inadequate corporate investment, loss of industrial competitiveness, a slowdown in total factor productivity (TFP) growth due to excessive regulation and economic rigidities, and an aging society. The study compares Japan’s experience with three other groups that experienced banking crises in the 1990s—developed economies; emerging Asian economies and Latin American economies. Japan’s experience is found to parallel most closely that of other Asian economies that experienced unusually high growth rates of gross domestic product (GDP) and credit before their crises. The study also develops an econometric model of long-term growth rates that uses measures of net investment, the share of the aged in the population, and occurrence of banking crises in addition to traditional explanatory variables. It finds that very low rates of consumer price index (CPI) inflation (or deflation) and net investment, the lack of openness to foreign direct investment, and an aged population explain much of Japan’s slowdown.

Suggested Citation

  • Masahiro Kawai & Peter Morgan, 2013. "Banking Crises and “Japanization†: Origins and Implications," Macroeconomics Working Papers 23509, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:macroe:23509
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    File URL: http://www.eaber.org/node/23509
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    References listed on IDEAS

    as
    1. Masahiro Kawai, 2005. "Reform of the Japanese banking system," International Economics and Economic Policy, Springer, vol. 2(4), pages 307-335, December.
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    More about this item

    Keywords

    Japan; lost decades; Japanization; global financial crisis; macroeconomic policy responses; banking crisis;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises

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