ASSET PRICE INFLATION AND ECONOMIC-POLICIES

The Japanese economy experienced a remarkable economic growth during t he latter half of the 1980s. Almost simultaneouly, stock price and lan d prices showed extraordinary increases. The main purpose of this pape r is to examine the nature of this asset price inflation and to analyz e the relationship between that and real economic activities. This pap er argues that the increase in asset prices during this period was cau sed mainly by speculative bubbles. Macroeconomic policies and flow of fund during this period had important effects on the growth of the bub ble. 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 cast s doubts to the popular argument that the growth and collapse of the b ubble were the main factors which caused fluctuations in the real econ omy.