IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_5908.html
   My bibliography  Save this paper

Regional Heterogeneity, the Rise of Public Debt and Monetary Policy in Post-Bubble Japan: Lessons for the EMU

Author

Listed:
  • Raphael Fischer
  • Gunther Schnabl

Abstract

Both Japan and parts of the European Monetary Union have experienced boom and bust in stock and real estate markets, which have been followed by a lasting crisis. The paper analyses the role of a high degree of regional heterogeneity for public debt and monetary policy in the context of crisis. It is shown for Japan that the attempts to maintain regional cohesion via a regional transfer mechanism has contributed to the unprecedented rise in public debt and persistent monetary expansion. Econometric estimations show that in Japan regional redistribution of funds has ensured homogeneous living conditions across Japanese regions pre- and post-crisis. The side condition is monetary expansion. A similar effect could emerge in Europe, if the crisis persists.

Suggested Citation

  • Raphael Fischer & Gunther Schnabl, 2016. "Regional Heterogeneity, the Rise of Public Debt and Monetary Policy in Post-Bubble Japan: Lessons for the EMU," CESifo Working Paper Series 5908, CESifo.
    • Handle: RePEc:ces:ceswps:_5908
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5908.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fumio Hayashi & Edward C. Prescott, 2004. "The 1990s in Japan: a lost decade," Chapters, in: Paolo Onofri (ed.), The Economics of an Ageing Population, chapter 2, Edward Elgar Publishing.
    2. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target loans, current account balances and capital flows: the ECB’s rescue facility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 468-508, August.
    3. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
    4. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212, National Bureau of Economic Research, Inc.
    5. Nikos Christodoulakis, 2009. "Ten Years Of Emu: Convergence, Divergence And New Policy Priorities," National Institute Economic Review, National Institute of Economic and Social Research, vol. 208(1), pages 86-100, April.
    6. Hubert Gabrisch & Karsten Staehr, 2015. "The Euro Plus Pact: Competitiveness and External Capital Flows in the EU Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 53(3), pages 558-576, May.
    7. Fumio Hayashi & Edward C. Prescott, 2002. "The 1990s in Japan: A Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 206-235, January.
    8. Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 273-335.
    9. Ronald I. McKinnon & Kenichi Ohno, 1997. "Dollar and Yen: Resolving Economic Conflict between the United States and Japan," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133350, December.
    10. Ishi, Hiromitsu, 2001. "The Japanese Tax System," OUP Catalogue, Oxford University Press, edition 3, number 9780199242566.
    11. Arghyrou, Michael G. & Kontonikas, Alexandros, 2012. "The EMU sovereign-debt crisis: Fundamentals, expectations and contagion," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 658-677.
    12. Gabrisch, Hubert & Staehr, Karsten, 2014. "The euro plus pact: cost competitiveness and external capital flows in the EU countries," Working Paper Series 1650, European Central Bank.
    13. repec:lmu:muenar:19832 is not listed on IDEAS
    14. Takero Doi, 2010. "Poverty Traps With Local Allocation Tax Grants In Japan," The Japanese Economic Review, Japanese Economic Association, vol. 61(4), pages 466-487, December.
    15. Gunther Schnabl & Timo Wollmershäuser, 2013. "Fiscal Divergence and Current Account Imbalances in Europe," CESifo Working Paper Series 4108, CESifo.
    16. Dermot Hodson, 2013. "The Eurozone in 2012: ‘Whatever It Takes to Preserve the Euro'?," Journal of Common Market Studies, Wiley Blackwell, vol. 51, pages 183-200, September.
    17. Ansgar Belke & Ulrich Haskamp & Gunther Schnabl, 2018. "Beyond Balassa and Samuelson: real convergence, capital flows, and competitiveness in Greece," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(2), pages 409-424, May.
    18. Masahiko Shibamoto & Minoru Tachibana, 2013. "The Effect of Unconventional Monetary Policy on the Macro Economy: Evidence from Japan's Quantitative Easing Policy Period," Discussion Paper Series DP2013-12, Research Institute for Economics & Business Administration, Kobe University.
    19. Abad, José & Löffler, Axel & Schnabl, Gunther & Zemanek, Holger, 2012. "Fiscal divergence, current account and TARGET2 imbalances in the EMU," Working Papers 105, University of Leipzig, Faculty of Economics and Management Science.
    20. Cargill, Thomas-F, 2001. "Monetary Policy, Deflation, and Economic History: Lessons for the Bank of Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 113-134, February.
    21. Gunther Schnabl, 2015. "Monetary Policy and Structural Decline: Lessons from Japan for the European Crisis," Asian Economic Papers, MIT Press, vol. 14(1), pages 124-150, Winter/Sp.
    22. Woo, David, 2003. "In Search of "Capital Crunch": Supply Factors behind the Credit Slowdown in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 1019-1038, December.
    23. Mr. David Woo & Mr. Akihiro Kanaya, 2000. "The Japanese Banking Crisis of the 1990's: Sources and Lessons," IMF Working Papers 2000/007, International Monetary Fund.
    24. José Abad & Axel Löffler & Gunther Schnabl & Holger Zemanek, 2013. "Fiscal divergence, current account divergence and TARGET2 imbalances in the EMU," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 48(1), pages 51-58, January.
    25. Ichiro Aoki, 2008. "Decentralization and Intergovernmental Finance in Japan," Finance Working Papers 23074, East Asian Bureau of Economic Research.
    26. Götz, Martin R. & Haselmann, Rainer & Krahnen, Jan Pieter & Steffen, Sascha, 2015. "Did emergency liquidity assistance (ELA) of the ECB delay the bankruptcy of Greek banks?," SAFE Policy Letters 46, Leibniz Institute for Financial Research SAFE.
    27. Uwe Vollmer & Ralf Bebenroth, 2012. "The Financial Crisis in Japan: Causes and Policy Reactions by the Bank of Japan," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 9(1), pages 51-77, April.
    28. Johannes Mayr, 2008. "The Financial Crisis in Japan – Are There Similarities to the Current Situation?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(04), pages 64-68, December.
    29. Christoph A. Schaltegger & Martin Weder, 2013. "Will Europe Face A Lost Decade? A Comparison With Japan's Economic Crisis," CREMA Working Paper Series 2013-03, Center for Research in Economics, Management and the Arts (CREMA).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Abu Bakkar Siddique, 2021. "Does ethnic diversity hurt fiscal sustainability?," Economics Bulletin, AccessEcon, vol. 41(2), pages 532-543.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gunther Schnabl, 2013. "The Macroeconomic Policy Challenges of Balance Sheet Recession: Lessons from Japan for the European Crisis," CESifo Working Paper Series 4249, CESifo.
    2. Gunther Schnabl, 2015. "Monetary Policy and Structural Decline: Lessons from Japan for the European Crisis," Asian Economic Papers, MIT Press, vol. 14(1), pages 124-150, Winter/Sp.
    3. Gunther Schnabl, 2017. "The Failure of ECB Monetary Policy from a Mises-Hayek Perspective," CESifo Working Paper Series 6388, CESifo.
    4. Schnabl, Gunther, 2017. "Monetary policy and wandering overinvestment cycles in East Asia and Europe," Working Papers 148, University of Leipzig, Faculty of Economics and Management Science.
    5. Gunther Schnabl, 2017. "Monetary policy and overinvestment in East Asia and Europe," Asia Europe Journal, Springer, vol. 15(4), pages 445-462, December.
    6. Schnabl Gunther, 2013. "Die japanischen Lehren für die europäische Krise," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 62(1), pages 3-22, April.
    7. Hiroyuki Kasahara & Yasuyuki Sawada & Michio Suzuki, 2023. "The Effect of Bank Recapitalization Policy on Credit Allocation, Investment, and Productivity: Evidence from a Banking Crisis in Japan," CESifo Working Paper Series 10622, CESifo.
    8. Barseghyan, Levon, 2010. "Non-performing loans, prospective bailouts, and Japan's slowdown," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 873-890, October.
    9. Unger, Robert, 2017. "Asymmetric credit growth and current account imbalances in the euro area," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 435-451.
    10. Hiroyuki Kasahara & Yasuyuki Sawada & Michio Suzuki, 2016. "Monetary Policy and Covered Interest Parity in the Post GFC Period: Evidence from the Australian Dollar and the NZ Dollar," CIRJE F-Series CIRJE-F-1033, CIRJE, Faculty of Economics, University of Tokyo.
    11. Pablo Duarte & Gunther Schnabl, 2015. "Macroeconomic Policy Making, Exchange Rate Adjustment and Current Account Imbalances in Emerging Markets," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 531-544, August.
    12. Kazuo Ueda, 2012. "Deleveraging and Monetary Policy: Japan since the 1990s and the United States since 2007," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 177-202, Summer.
    13. Akira Otani & Shigenori Shiratsuka & Takeshi Yamada, 2007. "Distortions in Resource Allocation and Bank Lending: The Malfunction of Financial Intermediation," Bank of Japan Working Paper Series 07-E-6, Bank of Japan.
    14. Claudio Morana, 2006. "The End of the Japanese Stagnation: an Assessment of the Policy Solutions," ICER Working Papers 27-2006, ICER - International Centre for Economic Research.
    15. Nakashima, Kiyotaka & Takahashi, Koji, 2018. "The real effects of bank-driven termination of relationships: Evidence from loan-level matched data," Journal of Financial Stability, Elsevier, vol. 39(C), pages 46-65.
    16. Hiroyuki Kasahara & Yasuyuki Sawada & Michio Suzuki, 2016. "The Effect of Bank Recapitalization Policy on Corporate Investment: Evidence from a Banking Crisis in Japan," CARF F-Series CARF-F-399, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    17. Inoue, Hitoshi & Nakashima, Kiyotaka & Takahashi, Koji, 2018. "The Emergence of A Parallel World: The Misperception Problem for Bank Balance Sheet Risk and Lending Behavior," MPRA Paper 89088, University Library of Munich, Germany.
    18. Wako Watanabe, 2004. "Prudential Regulation, the Credit Crunch" and the Ineffectiveness of Monetary Policy: Evidence from Japan," ISER Discussion Paper 0617, Institute of Social and Economic Research, Osaka University.
    19. Yasuyuki Sawada & Kazumitsu Nawata & Masako Ii & Mark J. Lee, 2011. "Did the Financial Crisis in Japan Affect Household Welfare Seriously?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(2‐3), pages 297-324, March.
    20. Maurice Obstfeld, 2009. "Time of Troubles: The Yen and Japan's Economy, 1985-2008," NBER Working Papers 14816, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Japan; EMU; crisis; regional redistribution; monetary policy; public debt;
    All these keywords.

    JEL classification:

    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_5908. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.