Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/145402 
Year of Publication: 
2015
Series/Report no.: 
ADBI Working Paper No. 554
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
Japan has suffered from sluggish economic growth and recession since the early 1990s. In this paper, we analyze the causes of the prolonged slowdown of the Japanese economy (the lost decade). Economics Nobel laureate Paul Krugman has argued that Japan's lost decade is an example of a liquidity trap. However, our empirical analysis shows that stagnation of the Japanese economy comes from its vertical IS curve rather than a horizontal LM curve, so the Japanese economy faces structural problems rather than a temporary downturn. The structural problems mainly come from the aging demographic, which is often neglected in other studies, and also from the allocation of transfers from the central government to local governments, and the unwillingness of Japanese banks to lend money to startup businesses and SMEs, mainly because of Basel capital requirements. Many countries, like the People's Republic of China, are expected to face similar issues, particularly the aging population, and so are very much concerned about the long-term recession that Japan has experienced. This paper will address why the Japanese economy has been trapped in a prolonged slowdown and will provide some remedies for revitalizing the economy.
Subjects: 
Japan's lost decade
recessions
prolonged slowdown
JEL: 
E12
E62
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.