The contraction was transmitted to the rest of the world via the fixed exchange rate linkages of the gold standard and by “golden fetters” which prevented the monetary authorities of gold standard adherents from following the expansionary policies needed to offset the collapsing demand and a rash of banking panics across the world (Bernanke and James, 1991), without triggering a speculative attack on the gold parity (Eichengreen, 1992).
Monetary conditions have played a role also in the case of Japan. With hindsight, it could be argued that monetary policy was overly accommodative during the run up of the bubble, and possibly too tight as the recession started, in 1991. In any case, it is now clear that deflationary risks were obviously not recognised at the time.