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Capital Market Integration In Japan

  • Kris James Mitchener

    (Assistant Department of Economics, Santa Clara University (E-mail:kmitchener@scu.edu))

  • nd Mari Ohnuki

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: mari.oonuki@boj.or.jp))

Registered author(s):

    We construct new quarterly estimates of lending rates for 47 Japanese prefectures for the period 1886-1922, and test the extent to which regional capital markets integrated during this period. We analyze whether the capital market was efficient, estimate the speed of convergence among the rates, and assess the degree to which different regions were integrated with the main financial centers of Japan. Interest-rate differentials between the financial centers of Japan and other regions do not follow a random walk, and hence are suggestive of market efficiency ? in the sense that arbitrage opportunities did not persist. Results from cointegration tests suggest that the integration in Japan is characterized by multiple stochastic elements. We find the existence of four long-run cointegrating relationships. We also find evidence that shocks occurring in a financial center, such as the Kanto region, were transmitted to outlying regions and had permanent, but small effects on their rates.

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    File URL: http://www.imes.boj.or.jp/research/papers/english/07-E-17.pdf
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    Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 07-E-17.

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    Date of creation: Aug 2007
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    Handle: RePEc:ime:imedps:07-e-17
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    1. Tetsuji Okazaki & Michiru Sawada, 2004. "Effects of bank consolidation promotion policy: Evaluating the Bank Law in 1927 Japan," Discussion papers 04004, Research Institute of Economy, Trade and Industry (RIETI).
    2. Luigi Guiso & Tullio Jappelli & Mario Padula & Marco Pagano, 2004. "Financial market integration and economic growth in the EU," Economic Policy, CEPR;CES;MSH, vol. 19(40), pages 523-577, October.
    3. James, John A, 1976. "Banking Market Structure, Risk, and the Pattern of Local Interest Rates in the United States, 1893-1911," The Review of Economics and Statistics, MIT Press, vol. 58(4), pages 453-62, November.
    4. Gourinchas, Pierre-Olivier & Jeanne, Olivier, 2003. "The Elusive Gains from International Financial Integration," CEPR Discussion Papers 3902, C.E.P.R. Discussion Papers.
    5. Rousseau, Peter L., 1999. "Finance, investment, and growth in Meiji-era Japan," Japan and the World Economy, Elsevier, vol. 11(2), pages 185-198, April.
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    7. Claudia M. Buch, 2000. "Financial Market Integration in the US: Lessons for Europe?," Kiel Working Papers 1004, Kiel Institute for the World Economy.
    8. Rockoff, Hugh, 1977. "Regional interest rates and bank failures, 1870-1914," Explorations in Economic History, Elsevier, vol. 14(1), pages 90-95, January.
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    10. James, John A., 1976. "The Development of the National Money Market, 1893-1911," The Journal of Economic History, Cambridge University Press, vol. 36(04), pages 878-897, December.
    11. Landon-Lane, John & Rockoff, Hugh, 2007. "The origin and diffusion of shocks to regional interest rates in the United States, 1880-2002," Explorations in Economic History, Elsevier, vol. 44(3), pages 487-500, July.
    12. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
    13. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
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