By Forrest Capie, Geoffrey E. Wood
The recession which many nations skilled within the early Nineteen Nineties had sure strange points. such a lot significantly, and customary to all international locations, was once the behaviour of asset costs relative to the final fee point. consequently, purposes have been sought to give an explanation for the distinct features of the recession and a result of behaviour of asset costs recognition grew to become to 'Debt-Deflation Theories' linked in numerous kinds with Keynes and Irving Fisher. The participants to this quantity speak about the importance of debt deflation. Their impressive universal characteristic is that, at the facts offered the following, the behaviour of asset costs shouldn't be of serious quandary to coverage makers, or to these trying to comprehend financial behaviour. even though, residual doubts stay over the japanese case.
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Extra info for Asset Prices and the Real Economy
Source : Statistics Sweden. 4, at least for the years immediately following 1985. 9 The picture of moderately high real interest rates in the years after 1985 is even further modified when tax deductibility of interest payments is allowed for. The tax treatment of household interest payments has historically been very favourable to borrowers. With high marginal taxes, deductibility of interest payments has had a very strong bite. The marginal tax in the top bracket was 85 per cent in 1982, which as a result of full deductibility meant that interest payments of 100 Kronor reduced disposable income only by 15 Kronor.
On the borrower side, the behaviour of real interest rates, the relaxation of regulatory constraints on borrowers' access to c~edits, and the circumstances surrounding the boom in the domestic economy all affected the increased demand for credit. Lars Jonung and Joakim Stymne 23 Lending In Sweden, the 1980s was a time of important innovations in financial markets as well as a period during which fiscal and monetary policies contributed to rapid credit growth. Financial Sector Deregulation and Competition The process of financial deregulation was common to several countries during the late 1970s and through the 1980s.
1 highlights the development of some central variables during the boom period of 1985-90 and the bust period of 1991-3. 2 Commercial property prices (Stockholm office buildings, prime location) 1 Fixed investment, per cent of GDP3 Unemployment, per cent of labour force 3 Household saving, per cent of disposable income 3 Business bankruptcies, no. 1 Notes: 1. Average annual percentage change. 2. End-of-year changes. 3. Annual averages. Sources: Statistics Sweden: Swedish Institute for Economic Research; Affiirsvarlden; Ljungquist Fastighets Varderingar AB; own calculations.