Bankâ€™s regulation, asset portfolio choice of banks, and macroeconomic dynamics
Since the middle of 1990s, the Japanese banks have continuously tilted their asset portfolio towards the government bonds, reducing their lending to Â…rms. In this paper, we investigate the causes and consequences of such changes in the banks behaviors, by introducing the bankâ€™s asset portfolio decision into an otherwise standard New Keynesian model. The banks in our model construct their portfolio under the value at risk constraint, that requires banks repay their debt regardless of the realization of the asset returns. Under the constraint, an increase in down-side risks, tightening of capital requirement rules or deterioration of the banks net worth reduce the banksÂ’ risk taking capacity, and incurs a shrinkage of the bankâ€™s balance sheet and asset rebalancing towards government bond. The changes in banksÂ’ investment decisions dampen output and inflation. Empirical studies suggest that our theoretical predictions are consistent with behavior of the Japanese banks.
|Date of creation:||Jul 2013|
|Contact details of provider:|| Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033|
Web page: http://www.carf.e.u-tokyo.ac.jp/english/
More information through EDIRC
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.:
- Keisuke Otsu, 2011.
"Accounting for Japanese Business Cycles: A Quest for Labor Wedges,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 29, pages 143-170, November.
- Keisuke Otsu, 2009. "Accounting for Japanese Business Cycles: a Quest for Labor Wedges," IMES Discussion Paper Series 09-E-28, Institute for Monetary and Economic Studies, Bank of Japan.
- Keisuke Otsu, 2011. "Accounting for Japanese Business Cycles: A Quest for Labor Wedges," Studies in Economics 1106, School of Economics, University of Kent.
- Devereux, Michael B. & Sutherland, Alan, 2010. "Country portfolio dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 34(7), pages 1325-1342, July.
- Devereux, Michael B & Sutherland, Alan, 2007. "Country Portfolio Dynamics," CEPR Discussion Papers 6208, C.E.P.R. Discussion Papers.
- Alan Sutherland & Michael B. Devereux, 2007. "Country Portfolio Dynamics," IMF Working Papers 07/283, International Monetary Fund.
- Alan Sutherland & Michael B Devereux, 2007. "Country Portfolio Dynamics," 2007 Meeting Papers 386, Society for Economic Dynamics.
- Nao Sudo, 2011. "Accounting for the Decline in the Velocity of Money in the Japanese Economy," IMES Discussion Paper Series 11-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
- Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
- Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006. "Zombie Lending and Depressed Restructuring in Japan," NBER Working Papers 12129, National Bureau of Economic Research, Inc.
- Thomas J. Sargent & Paolo Surico, 2011. "Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals," American Economic Review, American Economic Association, vol. 101(1), pages 109-128, February.
- Yasuo Hirose & Takushi Kurozumi, 2012. "Do Investment-Specific Technological Changes Matter For Business Fluctuations? Evidence From Japan," Pacific Economic Review, Wiley Blackwell, vol. 17(2), pages 208-230, 05.
- Yasuo Hirose & Takushi Kurozumi, 2010. "Do Investment-Specific Technological Changes Matter for Business Fluctuations? Evidence from Japan," Bank of Japan Working Paper Series 10-E-4, Bank of Japan.
- Hirose, Yasuo & Kurozumi, Takushi, 2011. "Do investment-specific technological changes matter for business fluctuations? Evidence from Japan," MPRA Paper 32944, University Library of Munich, Germany.
- Takuji Fueki & Ichiro Fukunaga & Hibiki Ichiue & Toyoichiro Shirota, 2016. "Measuring Potential Growth with an Estimated DSGE Model of Japan’s Economy," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 1-32, March.
- Takuji Fueki & Ichiro Fukunaga & Hibiki Ichiue & Toyoichiro Shirota, 2010. "Measuring Potential Growth with an Estimated DSGE Model of Japan's Economy," Bank of Japan Working Paper Series 10-E-13, Bank of Japan.
- Michael B. Devereux & Alan Sutherland, 2011. "Country Portfolios In Open Economy Macro‐Models," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 337-369, 04.
- Michael B. Devereux & Alan Sutherland, 2008. "Country Portfolios in Open Economy Macro Models," NBER Working Papers 14372, National Bureau of Economic Research, Inc.
- Devereux, Michael B. & Sutherland, Alan, 2008. "Country portfolios in open economy macro models," Globalization and Monetary Policy Institute Working Paper 09, Federal Reserve Bank of Dallas.
- Doi, Takero & Hoshi, Takeo & Okimoto, Tatsuyoshi, 2011. "Japanese government debt and sustainability of fiscal policy," Journal of the Japanese and International Economies, Elsevier, vol. 25(4), pages 414-433.
- Takero Doi & Takeo Hoshi & Tatsuyoshi Okimoto, 2011. "Japanese Government Debt and Sustainability of Fiscal Policy," NBER Working Papers 17305, National Bureau of Economic Research, Inc.
- Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf323. 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: ()
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.