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Unformatted text preview: avourable shocks, have led to the emergence of a major domestic imbalance between
savings and investment that acts as a nearstructural brake on expansion.
(i) Unfavourable Short-run Shocks
There is general agreement on the view that the
country’s decade-long stagnation began with the
collapse, in 1990, of the stock-market (and landprice) bubbles that had characterized the late 1980s.
Over the decade from its 1989 peak, the Nikkei
share price index fell by more than 50 per cent. Land
prices, between 1991 and 1998, declined by at least
one-quarter. OECD estimates suggest that the net
wealth losses incurred by the economy between
1989 and 1997, as a consequence of these asset
price collapses, came to as much as 2 years’ worth of GDP (or $7 trillion), of which some 50 per cent
was directly borne by households (OECD, 1999).
This massive loss in wealth must have had serious
negative consequences. Thus, companies, whose
business investment had risen by some 8½ per cent
per annum in the 1980s, now recorded negative
growth (–2 per cent per annum). Households, whose
disposable income in the decade rose very slowly,
also restricted their spending, so that private consumption, which had increased by some 4 per cent
per annum in...
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This note was uploaded on 02/03/2014 for the course ECON 204 taught by Professor Devero during the Summer '13 term at American University of Sharjah.
- Summer '13