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Financial Intermediation with Heterogeneous Projects: An Application to the Japanese Credit Crunch




Japan has gone through a long period of stagnation in the 1990s. We use a model of financial intermediation and endogenous occupational choice to understand this stagnation. In this model, investment projects are partly financed by loans and banks screen candidates by looking at their wealth. Due to various idiosyncratic risks, total wealth is heterogeneous across households. Calibrating the model to Japan, we conclude that the successive lowering of interest rates by the Bank of Japan was doomed to be ineffective, and that cash injections into the banking sector have little impact. Modifications to the regulation of the lending practices are, however, very potent in getting the country out of a credit crunch. Le Japon a vécu une période prolongée de stagnation durant les années 1990. Nous étudions cette stagnation au moyen d'un modèle d'intermediation financière avec choix occupationnel. Dans ce modèle, les projets d'investissement nécessitent un financement externe et les banques sélectionnent les candidats en fonction de leur fortune. En raison de divers risques individuels, la fortune totale est hétérogène à travers la population. Étalonné au Japon, ce modèle nous permet de conclure que les réductions successives des taux d'intérêt ne pouvaient pas être efficaces et que les injections d'argent frais dans le système bancaire ont peu d'impact. Modifier la réglementation des pratiques de prêt est par contre une politique très efficace pour sortir le pays d'un rationnement excessif du crédit.

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  • Mingwei Yuan & Christian Zimmermann, 2000. "Financial Intermediation with Heterogeneous Projects: An Application to the Japanese Credit Crunch," Cahiers de recherche CREFE / CREFE Working Papers 115, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:115

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    References listed on IDEAS

    1. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 309-340.
    2. Ito, Takatoshi & Sasaki, Yuri Nagataki, 2002. "Impacts of the Basle Capital Standard on Japanese Banks' Behavior," Journal of the Japanese and International Economies, Elsevier, vol. 16(3), pages 372-397, September.
    3. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 533-563.
    4. Williamson, Stephen D, 1987. "Financial Intermediation, Business Failures, and Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1196-1216, December.
    5. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    6. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
    7. Menzie D. Chinn & Michael P. Dooley, 1997. "Monetary Policy in Japan, Germany and the United States: Does One Size Fit All?," NBER Working Papers 6092, National Bureau of Economic Research, Inc.
    8. Edward J. Green & Soo-Nam Oh, 1991. "Can a "credit crunch" be efficient?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-17.
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    More about this item


    Japan; Credit crunch; Basle accord; heterogeneous agents; bank regulation;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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