Asset Price Bubbles, Price Stability, and Monetary Policy: Japan' s Experience

Abstract

Japan's economy has experienced an extremely large swing against the backdrop of the emergence, expansion, and bursting of asset price bubbles. When examining the emergence and bursting of the bubble economy from the viewpoint of monetary policy management, should the Bank of Japan have given more consideration to asset price fluctuations in formulating its monetary policy? Or, should the Bank not have been perplexed with asset price fluctuations and conducted policies focusing only on the general price level such as inflation targeting? In answering these questions and deciding policy actions, to what extent should the Bank consider financial system problems? This paper aims at forming some tentative answers to these questions.