ASSET PRICE INFLATION AND ECONOMIC-POLICIES

The Japanese economy experienced a remarkable economic growth during the latter half of the 1980s. Almost simultaneouly, stock price and land prices showed extraordinary increases. The main purpose of this paper is to examine the nature of this asset price inflation and to analyze the relationship between that and real economic activities. This paper argues that the increase in asset prices during this period was caused mainly by speculative bubbles. Macroeconomic policies and flow of fund during this period had important effects on the growth of the bubble. In particular, monetary selaxation which was thought as necessary to prevent further appreciation of the Yen can be regarded as one of the most important factors which triggered the bubble. This paper casts doubts to the popular argument that the growth and collapse of the bubble were the main factors which caused fluctuations in the real economy.