Explaining Asset Bubbles in Japan

62 Pages Posted: 27 Aug 2000 Last revised: 24 Aug 2022

See all articles by Takatoshi Ito

Takatoshi Ito

University of Tokyo - Faculty of Economics; National Bureau of Economic Research (NBER); Ministry of Finance, Tokyo

Tokuo Iwaisako

Hitotsubashi University - Institute of Economic Research

Date Written: November 1995

Abstract

This paper examines the stock and land price behaviors during the bubble economy period (the second half of the 1980s), paying considerable attention to the linkage of the two markets and the effects of monetary policy. In particular, we examine whether the booms in these asset prices can be justified by changes of the fundamental economic variables such as the interest rates or the growth of the real economy. A complex chain of events is needed to explain the process of asset price inflation and deflation. Our empirical results suggest (i) that the initial increases of asset prices are sown by a sharp increase in bank lending to real estate; (ii) that a considerable comovement between stock and land prices is consistent with a theory that emphasizes the relationship between the collateral value of land and cash flow for constrained firms; (iii) that although the real economy was doing well and the interest rates were still low, asset price increases from mid-1987 to mid-1989 cannot be fully justified by the movement of fundamentals alone; and (iv) the stock price increase in the second half of 1989 and the land price increase in 1990 is not explained by any asset pricing model based on fundamentals or rational bubbles.

Suggested Citation

Ito, Takatoshi and Iwaisako, Tokuo, Explaining Asset Bubbles in Japan (November 1995). NBER Working Paper No. w5358, Available at SSRN: https://ssrn.com/abstract=225421

Takatoshi Ito (Contact Author)

University of Tokyo - Faculty of Economics ( email )

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Tokyo 113-0033
Japan

National Bureau of Economic Research (NBER) ( email )

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Ministry of Finance, Tokyo ( email )

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+81-3-3581-4720 (Phone)
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Tokuo Iwaisako

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

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