Equilibrium indeterminacy and asset price fluctuation in Japan: A Bayesian investigation

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15 Citations (Scopus)


This paper investigates sources of asset price fluctuation in Japan using an estimated financial accelerator model. For explicit treatment of expectational beliefs characterized by sunspots, the model is analyzed over the parameter space where the equilibrium can be indeterminate. We show that indeterminacy arises if the financial accelerator effect is sufficiently large. According to our Bayesian estimation results, Japan's economy was affected by sunspot shocks; however, the contribution of the sunspots to asset price volatility was low. Rather, net worth and cost shocks drove the asset price fluctuation. We find, however, that the sunspots substantially affected capital investment.

Original languageEnglish
Pages (from-to)967-999
Number of pages33
JournalJournal of Money, Credit and Banking
Issue number5
Publication statusPublished - 2008 Aug
Externally publishedYes


  • Asset price
  • Bayesian analysis
  • Financial accelerator
  • Indeterminacy
  • Sunspot shocks

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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