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Capital Market Integration in Japan

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Author Info

  • Kris James Mitchener

    (Assistant Professor, Department of Economics, Santa Clara University (E-mail: kmitchener@scu.edu))

  • Mari Ohnuki

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: mari.oonuki@boj.or.jp))

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    Abstract

    We construct new quarterly estimates of lending rates for the 47 Japanese prefectures for the period 1886-1922, and test the extent to which regional capital markets integrated during this period. We analyze whether the Japanese capital market was efficient, estimate the speed of convergence among the rates, and assess the degree to which different regions were integrated with the main financial centers of Japan. Interest rate differentials between the financial centers of Japan and other regions do not follow a random walk, and hence are suggestive of market efficiency-in the sense that arbitrage opportunities did not persist. Results from cointegration tests suggest that the integration in Japan is characterized by multiple stochastic elements. We find the existence of four long-run cointegrating relationships. We also find evidence that shocks occurring in a financial center, such as the Kanto region in which Tokyo is located, were transmitted to outlying regions and had permanent but small effects on their rates.

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    Bibliographic Info

    Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

    Volume (Year): 25 (2007)
    Issue (Month): 2 (November)
    Pages: 129-154

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    Handle: RePEc:ime:imemes:v:25:y:2007:i:2:p:129-154

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    Keywords: Financial market development; Capital market integration; Economic integration; Japanese banks;

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    References

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    1. Bodenhorn, Howard, 1992. "Capital Mobility and Financial Integration in Antebellum America," The Journal of Economic History, Cambridge University Press, vol. 52(03), pages 585-610, September.
    2. Bernard, Andrew B & Durlauf, Steven N, 1995. "Convergence in International Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-108, April-Jun.
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    13. Rockoff, Hugh, 1977. "Regional interest rates and bank failures, 1870-1914," Explorations in Economic History, Elsevier, vol. 14(1), pages 90-95, January.
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    15. Landon-Lane, John & Rockoff, Hugh, 2007. "The origin and diffusion of shocks to regional interest rates in the United States, 1880-2002," Explorations in Economic History, Elsevier, vol. 44(3), pages 487-500, July.
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    Cited by:
    1. Kris James Mitchener & Mari Ohnuki, 2008. "Institutions, Competition, and Capital Market Integration in Japan," IMES Discussion Paper Series 08-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
    2. Kris J. Mitchener & Mari Ohnuki, 2008. "Institutions, Competition, and Capital Market Integration in Japan," NBER Working Papers 14090, National Bureau of Economic Research, Inc.

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