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Deposit Insurance Regulatory forbearance and Economic Growth

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  • Kenneth Kletzer
  • Robert Dekle

Abstract

An endogenous growth model with financial intermediation demonstrates how deposit insurance and prudential regulatory forbearance lead to banking crises and growth declines. The model assumptions are based on features of the Japanese financial system and regulation. The model demonstrates how banking and growth crises can evolve under perfect foresight. The dynamics for economic aggregates and asset prices predicted by the model are shown to be generally consistent with the experience of the Japanese economy and financial system through the 1990s. We also test our maintained hypothesis of rational expectations using asset price data for Japan over the 1980s and 1990s.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/169.

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Length: 34
Date of creation: 01 Aug 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/169

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Related research

Keywords: Economic growth; deposit insurance; banking; banking crisis; stock returns; banking sector; stock market; financial system; regulatory forbearance; bank equity; bank credit; banking crises; bank deposits; bank loans; stock prices; banking system; present value; bank lending; financial intermediation; prudential regulation; bank equities; stock values; bank stock; deposit rate; bank stocks; bank shareholders; bank dividends; value of bank stocks; bank loan; bank managers; financial regulation; bank financing; bond; bank assets; discount rate; bond markets; bank portfolios; shareholder equity; bank crisis; foreign bond; deposit guarantee; bank intermediation; financial institutions; financial markets; international capital; stock price; savings rate; stock market declines; bank borrowing; bank liquidity crisis; equity shares; overvaluation; banking sector equity; domestic financial intermediation; banks rollover; bonds; loan loss reserve; bank monitoring; bankruptcies; bank bailouts; bank management; bank liquidity; bank regulation; bank balance sheets; bank runs; domestic financial markets; financial sector; foreign bond markets; reserve requirements; foreign exchange; international finance; bank supervisory regime; insurance premium; financial instruments; return on equity; currency crises;

This paper has been announced in the following NEP Reports:

References

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  1. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  2. Dekle, Robert & Kletzer, Kenneth, 2003. "The Japanese Banking Crisis and Economic Growth: Theoretical and Empirical Implications of Deposit Guarantees and Weak Financial Regulation," Santa Cruz Center for International Economics, Working Paper Series qt0t6321ds, Center for International Economics, UC Santa Cruz.
  3. Robert Dekle & Kenneth Kletzer, 2002. "Domestic Bank Regulation and Financial Crises: Theory and Empirical Evidence from East Asia," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 507-558 National Bureau of Economic Research, Inc.
  4. Takeo Hoshi & Anil Kashyap, 1999. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Working Papers 7250, National Bureau of Economic Research, Inc.
  5. repec:fth:osakae:505 is not listed on IDEAS
  6. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 1997. "The Political Economy of Japanese Monetary Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032473, December.
  7. Ogawa, K. & Kitasaka, S.-I., 2000. "Bank Lending in Japan: its Determinants and Macroeconomic Implications," ISER Discussion Paper 0505, Institute of Social and Economic Research, Osaka University.
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