George Chacko, Carolyn L. Evans

(Santa Clara University, Santa Clara, California 95053, USA)

 

 

Abstract: The last century provides three important examples of a liquidity shock spiraling into a full-blown macroeconomic crisis — the U.S. Great Depression, Japan’s “Lost Decade”, and the U.S. “Great Recession”. Japan’s lost decade provides a wealth of data and the benefit of 20 years of hindsight, and thus an ideal opportunity for exploring how a liquidity shock can feed through to banks and lead to a broad and deep economic downturn. We trace out the evidence for interpreting Japan’s Lost Decade as the aftermath of a liquidity shock and show how it led to many years of sluggish growth in Japan. 

 

 

Key words: Japanese economy; liquidity shock; lost Decade; financial crisis 

 

JEL codes: G01, N25