IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Bank Lending and Economic Activity in Japan: Did 'Financial Factors' Contribute to the Recent Downturn?

  • Brunner, Allan D
  • Kamin, Steven B

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 behavioural equations for loan standards, loan demand, and aggregate demand. Second, we find strong evidence that financial factors contributed to Japan's recent recession. On the loan supply side, exogenous declines in equity prices appear to have led to a sharp increase in bank loan standards and a substantial subsequent decline in loans and economic activity. We also find some evidence that an exogenous contraction in loan supply may have lowered output by a small degree, but only in the early phases of the recession. On the loan demand side, asset price declines also led firms and households to sharply reduce their demand for bank loans and goods, although it is unclear how much this influence may reflect 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. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 3 (1998)
Issue (Month): 1 (January)
Pages: 73-89

in new window

Handle: RePEc:ijf:ijfiec:v:3:y:1998:i:1:p:73-89
Contact details of provider: Web page:

Order Information: Web:

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.:

as in new window
  1. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  2. Kenneth R. French & James M. Poterba, 1990. "Were Japanese Stock Prices Too High?," NBER Working Papers 3290, National Bureau of Economic Research, Inc.
  3. Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
  4. Sun Bae Kim & Ramon Moreno, 1994. "Stock prices and bank lending behavior in Japan," Economic Review, Federal Reserve Bank of San Francisco, pages 31-42.
  5. Mark Gertler & Simon Gilchrist, 1993. "Monetary policy, business cycles and the behavior of small manufacturing firms," Finance and Economics Discussion Series 93-4, Board of Governors of the Federal Reserve System (U.S.).
  6. John Ammer, 1994. "Inflation, inflation risk, and stock returns," International Finance Discussion Papers 464, Board of Governors of the Federal Reserve System (U.S.).
  7. 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.).
  8. Alan S. Blinder & Joseph E. Stiglitz, 1983. "Money, Credit Constraints, and Economic Activity," NBER Working Papers 1084, National Bureau of Economic Research, Inc.
  9. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  10. 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(1), pages 123-174.
  11. 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.
  12. 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.
  13. David P. Ely & Kenneth J. Robinson, 1989. "The stock market and inflation: a synthesis of the theory and evidence," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Mar, pages 17-29.
  14. 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.
  15. 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.
  16. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
  17. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers 94-24, C.V. Starr Center for Applied Economics, New York University.
  18. Mishkin, Frederic S., 1978. "The Household Balance Sheet and the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 38(04), pages 918-937, December.
  19. Ben S. Bernanke & Alan S. Blinder, 1988. "Credit, Money, and Aggregate Demand," NBER Working Papers 2534, National Bureau of Economic Research, Inc.
  20. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ijf:ijfiec:v:3:y:1998:i:1:p:73-89. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.