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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.

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