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Financial Crisis, Firm Dynamics and Aggregate Productivity in Japan

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HOSONO Kaoru

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Abstract

Using a dynamic general equilibrium model of firm dynamics that incorporates financial intermediation costs, we quantify the degree to which the deterioration in the health of banks during the Japanese banking crisis had an impact on aggregate productivity through firm dynamics. We find that the deterioration of bank health accounts for about 20 percent to 30 percent of the actual decline in the de-trended TFP during the crisis period (1996-2002). Our results suggest that differential impacts of financial intermediation costs between more and less productive firms or between entrants and incumbents are essential to quantitatively assess the aggregate consequences of financial crises.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09012.

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Length: 49 pages
Date of creation: Apr 2009
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Handle: RePEc:eti:dpaper:09012

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  2. Dekle, Robert & Kletzer, Kenneth, 2003. "The Japanese banking crisis and economic growth: Theoretical and empirical implications of deposit guarantees and weak financial regulation," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 305-335, September. [Downloadable!] (restricted)
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  3. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March. [Downloadable!] (restricted)
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  5. Timothy Erickson & Toni M. Whited, 2000. "Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1027-1057, October. [Downloadable!] (restricted)
  6. Kyoji Fukao & Hyeog Ug Kwon, 2006. "Why Did Japan'S Tfp Growth Slow Down In The Lost Decade? An Empirical Analysis Based On Firm-Level Data Of Manufacturing Firms," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 195-228. [Downloadable!] (restricted)
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  7. Caselli, Francesco & Gennaioli, Nicola, 2003. "Dynastic Management," CEPR Discussion Papers 3767, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Russell W. Cooper & John C. Haltiwanger, 2006. "On the Nature of Capital Adjustment Costs," Review of Economic Studies, Blackwell Publishing, vol. 73(3), pages 611-633, 07. [Downloadable!] (restricted)
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  9. 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 1943-77, December. [Downloadable!]
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  10. Kobayashi, Keiichiro & Inaba, Masaru, 2006. "Business cycle accounting for the Japanese economy," Japan and the World Economy, Elsevier, vol. 18(4), pages 418-440, December. [Downloadable!] (restricted)
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  11. INABA Masaru, 2007. "Business Cycle Accounting for the Japanese Economy Using the Parameterized Expectations Algorithm," Discussion papers 07061, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  12. KOBAYASHI Keiichiro & YANAGAWA Noriyuki, 2008. "Banking Crisis and Borrower Productivity," Discussion papers 08003, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
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  15. Nagahata, Takashi & Sekine, Toshitaka, 2005. "Firm investment, monetary transmission and balance-sheet problems in Japan: an investigation using micro data," Japan and the World Economy, Elsevier, vol. 17(3), pages 345-369, August. [Downloadable!] (restricted)
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  17. Kozo Kiyota & Miho Takizawa, 2006. "The Shadow of Death: Pre-exit Performance of Firms in Japan," Discussion papers 06033, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
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  18. Antunes, António & Cavalcanti, Tiago & Villamil, Anne, 2008. "The effect of financial repression and enforcement on entrepreneurship and economic development," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 278-297, March. [Downloadable!] (restricted)
  19. Ricardo J. Caballero & Mohamad L. Hammour, 2000. "Creative Destruction and Development: Institutions, Crises, and Restructuring," NBER Working Papers 7849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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