Without it much of what went wrong in the 1990s would

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Unformatted text preview: 80s asset-price bubble was clearly what triggered a long period of low growth. Without it, much of what went wrong in the 1990s would probably never have happened. The subsequent sudden swings in the real exchange rate, in the stance of fiscal policies, and in Asian growth depressed activity at specific points in the decade. More importantly, by heightening the climate of uncertainty, these various subsequent shocks must also have destabilized expectations. (ii) Longer-run Supply Problems The alternative view of Japanese difficulties would put less stress on short-run demand swings and more on longer-run supply and institutional features. In this view, discussed in the paper by Hiroshi Yoshikawa in this issue, Japan’s longer-run growth is bound to slow down. One reason for this is the gradual end to catch-up opportunities. A further major reason is the expected sharp decline in the country’s population and the even sharper rise in the proportion of old people it will have to care for. As a result, it is argued,...
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