Comment on ‘It takes more than a bubble to become Japan’

Abstract

The focus on Japan in this conference serves two purposes. The first is to highlight the cost of bubbles and examine the place for policy action to limit the worst of excesses in asset price bubbles. This is obviously important to the debate now occurring in Australia. The second purpose is to focus on the problems of a sustained collapse in asset prices and how to deal with them. Japan matters to the global economy and the sooner it gets its economic act together the better for us all. Adam’s paper serves both these purposes. But discussants are not invited just to say how great a paper is. They are there for debate and testing ideas. To this end, I will revisit the question of the lessons of Japan’s experience for other countries, and focus especially on the place of targeted interventions in asset markets. Before I get to this, I would like to look at two structural issues in Japan that may be useful in addressing the lessons from Japan’s experience. The first issue is the interplay and connections between the prices of various asset classes. If asset market spillovers exist, policies specifically directed to one asset class may have unintended spill-over effects to other asset classes. The second issue is the degree to which asset prices matter to economic activity. If asset prices are particularly important to private decision makers, then the argument may be stronger for policy actions which address directly the disequilibrium in asset prices.