Asset price fluctuations in Japan: 1980–2000

In this paper, we try to account for the recent fluctuations in asset prices in Japan using a dynamic stochastic general equilibrium model. In our model, a key to explain the land-price fluctuation is how people's expectations about future productivity growth evolve over time. Specifically, by assuming adaptive learning on the growth rate of productivity, our model can replicate the Japanese land-price fluctuations over the period 1980–2000. However, even with adaptive learning, habit persistence, and costly capital accumulation, a substantial portion of the stock-price fluctuation is left unexplained, and a puzzle remains.     

A second-order stock market model

A first-order model for a stock market assigns to each stock a return parameter and a variance parameter that depend only on the rank of the stock. A second-order model assigns these parameters based on both the rank and the name of the stock. First- and second-order models exhibit stability properties that make them appropriate as a backdrop for the analysis of the idiosyncratic behavior of individual stocks. Methods for the estimation of the parameters of second-order models are developed in this paper.     

Sunspot Fluctuations in Asset Prices and Business Cycles in Japan Over 1986–1999

If individuals receive utility directly from the value of their wealth, equilibrium may be indeterminate so that sunspot equilibria may exist. In such an equilibrium, the price of an asset may fluctuate stochastically, as a result of spontaneous revisions of agents' expectations. A neoclassical growth model with such a utility function is used to show that those fluctuations in asset prices can generate co-movement among output, consumption and investment, even without assuming non-convex technology. In particular, numerical results show that the model can replicate well the business cycles in Japan over the period 1986–1999.