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Bank lending and economic activity in Japan: did "financial factors" contribute to the recent downturn?

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Author Info
Allan D. Brunner
Steven B. Kamin

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Abstract

In this paper, we examine the role of "financial factors" in Japan and attempt to gauge their recent impact on the Japanese economy. First, we find that proxies for financial factors enter significantly in behavioral equations for loan standards, loan demand and aggregate demand, although these proxies explain only a small amount of the variation in those variables. Second, there is some, albeit inconclusive, evidence that balance-sheet problems of households and firms contributed to Japan's recent recession. We find that exogenous declines in equity prices contributed significantly to the decline in loans and economic activity, although part of this influence appears to be operating through traditional wealth effects. In addition, loan demand shocks, which could reflect balance-sheet problems not captured by our model, account for much of the remainder of the shortfall in loans and some of the shortfall in economic activity. Finally, we also find some evidence that an exogenous contraction in loan supply, a "credit crunch," may have lowered output by a small degree, but only in the early phases of the recession.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 513.

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Date of creation: 1995
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Handle: RePEc:fip:fedgif:513

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Keywords: Bank loans ; Japan;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November. [Downloadable!] (restricted)
  2. Sun Bae Kim & Ramon Moreno, 1994. "Stock prices and bank lending behavior in Japan," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Feb 11. [Downloadable!]
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  3. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June. [Downloadable!] (restricted)
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  4. Stephen D. Oliner & Glenn D. Rudebusch, 1996. "Is there a broad credit channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13. [Downloadable!]
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  5. Joe Peek & Eric S. Rosengren, 1992. "The capital crunch in New England," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 21-31.
  6. French, Kenneth R. & Poterba, James M., 1991. "Were Japanese stock prices too high?," Journal of Financial Economics, Elsevier, vol. 29(2), pages 337-363, October. [Downloadable!] (restricted)
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  7. Alan S. Blinder & Joseph E. Stiglitz, 1983. "Money, Credit Constraints, and Economic Activity," NBER Working Papers 1084, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Allan D. Brunner & Steven B. Kamin, 1994. "Determinants of the 1991-93 Japanese recession: evidence from a structural model of the Japanese economy," International Finance Discussion Papers 479, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  9. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1994. "The Financial Accelerator and the Flight to Quality," NBER Working Papers 4789, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January. [Downloadable!] (restricted)
  12. Frederic S. Mishkin, 1977. "What Depressed the Consumer? The Household Balance Sheet and the 1973-75 Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1977-1), pages 123-174. [Downloadable!]
  13. Hancock, Diana & Laing, Andrew J. & Wilcox, James A., 1995. "Bank capital shocks: Dynamic effects on securities, loans, and capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 661-677, June. [Downloadable!] (restricted)
  14. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May. [Downloadable!] (restricted)
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  15. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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  16. John Ammer, 1994. "Inflation, inflation risk, and stock returns," International Finance Discussion Papers 464, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nobuhiro Kiyotaki & Kenneth D. West, 1997. "Business Fixed Investment and the Recent Business Cycle in Japan," NBER Working Papers 5546, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Ramkishen S. Rajan & Reza Siregar & Iman Sugema, 2003. "Why was there a precrisis capital inflow boom in Southeast Asia?," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(3), pages 265-283. [Downloadable!]
  3. Alan Ahearne & Joseph Gagnon & Jane Haltmaier & Steve Kamin ... [et al.]., 2002. "Preventing deflation: lessons from Japan's experience in the 1990s," International Finance Discussion Papers 729, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  4. Takatoshi Ito & Yuri Nagatake Sasaki, 1998. "Impacts of the Basle Capital Standard on Japanese Banks' Behavior," NBER Working Papers 6730, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Michael Frömmel & Torsten Schmidt, 2006. "Bank Lending and Asset Prices in the Euro Area," RWI Discussion Papers 0042, Rheinisch-Westfälisches Institut für Wirtschaftsforschung. [Downloadable!]
    Other versions:
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