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A Historical Evaluation of Financial Accelerator Effects in Japan's Economy

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  • Fuchi, Hitoshi
  • Muto, Ichiro
  • Ugai, Hiroshi

Abstract

In this paper, we carry out a historical evaluation of the financial accelerator effects, which were mainly generated by the changes in asset prices, operating on Japan's economy since the 1980s. For this purpose, we estimate a Japanese financial accelerator model, which is a modified version of Bernanke, Gertler and Gilchrist [1999]'s model, and identify the historical exogenous shocks affecting the evolution of firms' net worth. As a result, we confirm that the estimated parameter on the corporate balance sheet channel is statistically significant. We also find that the identified net worth shocks, which change the amount of firms' debt holdings relative to their total values, produced a large and persistent impact on Japan's output and prices. This result strongly suggests that the negative financial accelerator effects were indispensable to explain the mechanism behind Japan's long stagnation during the 1990s and early 2000s, as well as indicating that the deflation of general prices since the late 1990s has been at least partly attributed to the same cause.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4648.

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Date of creation: Jun 2005
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Handle: RePEc:pra:mprapa:4648

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  1. Masayuki Nakakuki & Akira Otani & Shigenori Shiratsuka, 2004. "Distortions in Factor Markets and Structural Adjustments in the Economy," Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University d04-26, Institute of Economic Research, Hitotsubashi University.
  2. Naohiko Baba & Shinichi Nishioka & Nobuyuki Oda & Masaaki Shirakawa & Kazuo Ueda & Hiroshi Ugai, 2005. "Japan's deflation, problems in the financial system and monetary policy," BIS Working Papers 188, Bank for International Settlements.
  3. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  4. (Kim | Lopez-Salido | Swanson) & Andrew Levin, 2004. "The magnitude and Cyclical Behavior of Financial Market Frictions," Computing in Economics and Finance 2004, Society for Computational Economics 224, Society for Computational Economics.
  5. Ian Christensen & Ali Dib, 2006. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Working Papers, Bank of Canada 06-9, Bank of Canada.
  6. Smets, Frank & Wouters, Rafael, 2004. "Comparing Shocks and Frictions in US and Euro Area Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4750, C.E.P.R. Discussion Papers.
  7. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 253-257, May.
  8. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(1), pages 75-97, January.
  9. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0055, National Bureau of Economic Research, Inc.
  10. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  11. Meier, André & Müller, Gernot J., 2005. "Fleshing out the monetary transmission mechanism: output composition and the role of financial frictions," Working Paper Series, European Central Bank 0500, European Central Bank.
  12. Nishizaki, Kenji & Watanabe, Tsutomu, 2000. "Output-Inflation Trade-Off at Near-Zero Inflation Rates," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 304-326, December.
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Cited by:
  1. Yasuo Hirose, 2008. "Equilibrium Indeterminacy and Asset Price Fluctuation in Japan: A Bayesian Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(5), pages 967-999, 08.
  2. Rod Tyers & Jenny Corbett, 2012. "Japan's economic slowdown and its global implications: a review of the economic modelling," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, Asia Pacific School of Economics and Government, The Australian National University, vol. 26(2), pages 1-28, November.
  3. Hiroshi Ugai, 2007. "Effects of the Quantitative Easing Policy: A Survey of Empirical Analyses," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(1), pages 1-48, March.

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