ABSTRACT
This chapter explains the role of demographic changes in the emergence of asset price bubbles. It presents the lessons and policy implications from Japan's experience of the emergence of asset price bubbles and the 'lost decade' in the aftermath of the asset price bubble burst. The chapter evaluates policy measures to prevent a recurrence of financial crises in the future. It compares the recent asset price bubbles in the USA with Japan's bubbles in the latter half of the 1980s. The chapter then discusses the causes of asset price bubbles and examines the alternative explanation about the 'conundrum of long-term interest rates' to the Asian 'excess saving' hypothesis. Further, it evaluates the role of macro-prudential policy to monetary policy management to pre-empt the financial imbalance. In implementing the macro-prudential policy it is more practical to rely on the market mechanism and information-sharing between regulatory authorities and the central bank.
