We estimate a medium-scale DSGE model of the Japanese economy following Christiano, Eichenbaum and Evans (2005), Smets and Wouters (2003) and Levin et al. (2005). By using actual capital utilization data and modifying the formulation of utilization following Greenwood, Hercowitz and Huffmann...

The Japanese banks are now holding a lot of non-performing assets as asset prices fall. The Japanese banks were also holding a large amount of non-performing assets in the inter-war period. The experiences of Japan in the inter-war period may provide useful lessons for the problem of today's...