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Financial Linkages and Business Cycles of Japan: An Analysis Using Financial Conditions Index

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  • Jun-ichi Shinkai

    (Specially Appointed Researcher, Osaka School of International Public Policy (OSIPP))

  • Akira Kohsaka

    (Professor, Osaka School of International Public Policy (OSIPP))

Abstract

This paper constructs a financial conditions index (FCI) for Japan, using vector autoregressions (VAR) and impulse responses functions, and then investigate the effect of financial shocks on business cycles of Japan. Based upon our estimation results, we found that, in addition to the trade channel, the financial linkage played a significant role in Japanese business downturn caused by the current global financial crisis, and that its effect has come mainly from fallen stock prices and exchange rate appreciation, but not from credit crunch or the financial accelerator mechanism as had been the case in the recession in the early 1990s.

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File URL: http://www.osipp.osaka-u.ac.jp/archives/DP/2010/DP2010E008.pdf
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Bibliographic Info

Paper provided by Osaka School of International Public Policy, Osaka University in its series OSIPP Discussion Paper with number 10E008.

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Length: 17 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:osp:wpaper:10e008

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Related research

Keywords: financial conditions index (FCI); financial linkages; international business cycle transmission; vector autoregressions; global financial crisis;

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  1. St├ęphanie Guichard & David Haugh & David Turner, 2009. "Quantifying the Effect of Financial Conditions in the Euro Area, Japan, United Kingdom and United States," OECD Economics Department Working Papers 677, OECD Publishing.
  2. Jan Hatzius & Peter Hooper & Frederic S. Mishkin & Kermit L. Schoenholtz & Mark W. Watson, 2010. "Financial Conditions Indexes: A Fresh Look after the Financial Crisis," NBER Working Papers 16150, National Bureau of Economic Research, Inc.
  3. Michael B Devereux & James Yetman, 2010. "Financial deleveraging and the international transmission of shocks," BIS Papers chapters, in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 274-298 Bank for International Settlements.
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