Analysis of the Dual-Pillar PolicyBased on Lessons Learned from Japan, the United States and Spain

From the 1990s to the 2000s, Japan, the United States, and Spain have all experienced real estate bubbles triggered by prolonged loose monetary policies. Unlike Japan and Spain, which fell into prolonged economic recessions after the bubbles burst, the U.S. economy recovered quickly after a brief decline in asset values. Therefore, this paper finds that whether it was after Japan signed the Plaza Accord or after Spain joined the European Monetary Union, the loose monetary policies and low interest rates implemented by both governments led to excessive investment in the real estate industry. During the asset boom period, both Japan and Spain lacked adequate financial regulation, which resulted in the accumulation of systemic risks. Following the burst of the bubble, the surge in non-performing loan ratios led to credit tightening and significant wealth losses, ultimately plunging both economies into a deep recession. Before the subprime crisis erupted, the Federal Reserve had already assumed the responsibility of regulating financial institutions. The macroprudential management tools it employed, which targeted both the temporal dimension (countercyclical measures) and the structural dimension (risk correlation), effectively curbed the spread of the crisis across markets following the asset bubble burst. This paper suggests that developing countries should begin to establish a two-pillar policy before a crisis to smooth economic fluctuations and coordinate the implementation of macroprudential and microprudential policies.