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Contained crisis and socialized risk

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  • Nakabayashi, Masaki

Abstract

In the 1880s, Japan experienced its first stock investment boom, which was highly leveraged by the banking sector. In 1890, its first financial crisis occurred and triggered a de-leveraging process. With a high lower bound of the conventional interest rate intervention under the fixed exchange rate regime, the Bank of Japan decided to implement a massive securities purchases first time among major industrial economies and continued this unconventional policy until the early 1900s. We examine how the unconventional intervention for a decade affected the stock prices and the trade volumes, and show that the upward distortion in market pricing was considerable and that the equity-risk premium accordingly dropped, which meant socialization of the risk associated with the industrial investment.

Suggested Citation

  • Nakabayashi, Masaki, 2017. "Contained crisis and socialized risk," Research in International Business and Finance, Elsevier, vol. 40(C), pages 231-241.
  • Handle: RePEc:eee:riibaf:v:40:y:2017:i:c:p:231-241
    DOI: 10.1016/j.ribaf.2017.01.008
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    References listed on IDEAS

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    More about this item

    Keywords

    Lower bound of conventional monetary policy; Unconventional monetary policy; Securities purchases by central bank; Equity-risk premium; Fixed exchange rate; Bank of Japan;

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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