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Financial Linkages and Business Cycles of Japan: An Analysis Using Financial Conditions Index

Author

Listed:
  • Jun-ichi Shinkai

    (Specially Appointed Researcher, Osaka School of International Public Policy (OSIPP))

  • Akira Kohsaka

    (Professor, Osaka School of International Public Policy (OSIPP))

Abstract

This paper constructs a financial conditions index (FCI) for Japan, using vector autoregressions (VAR) and impulse responses functions, and then investigate the effect of financial shocks on business cycles of Japan. Based upon our estimation results, we found that, in addition to the trade channel, the financial linkage played a significant role in Japanese business downturn caused by the current global financial crisis, and that its effect has come mainly from fallen stock prices and exchange rate appreciation, but not from credit crunch or the financial accelerator mechanism as had been the case in the recession in the early 1990s.

Suggested Citation

  • Jun-ichi Shinkai & Akira Kohsaka, 2010. "Financial Linkages and Business Cycles of Japan: An Analysis Using Financial Conditions Index," OSIPP Discussion Paper 10E008, Osaka School of International Public Policy, Osaka University.
  • Handle: RePEc:osp:wpaper:10e008
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    File URL: http://www.osipp.osaka-u.ac.jp/archives/DP/2010/DP2010E008.pdf
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    References listed on IDEAS

    as
    1. Michael B Devereux & James Yetman, 2010. "Financial deleveraging and the international transmission of shocks," BIS Papers chapters,in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 274-298 Bank for International Settlements.
    2. Stéphanie Guichard & David Haugh & David Turner, 2009. "Quantifying the Effect of Financial Conditions in the Euro Area, Japan, United Kingdom and United States," OECD Economics Department Working Papers 677, OECD Publishing.
    3. Jan Hatzius & Peter Hooper & Frederic S. Mishkin & Kermit L. Schoenholtz & Mark W. Watson, 2010. "Financial Conditions Indexes: A Fresh Look after the Financial Crisis," NBER Working Papers 16150, National Bureau of Economic Research, Inc.
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    Cited by:

    1. repec:tpr:asiaec:v:16:y:2017:i:2:p:83-117 is not listed on IDEAS
    2. repec:eee:inteco:v:150:y:2017:i:c:p:36-56 is not listed on IDEAS
    3. Rémy Charleroy & Michael A. Stemmer, 2014. "An Emerging Market Financial Conditions Index: A VAR Approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01110688, HAL.
    4. repec:agr:journl:v:3(612):y:2017:i:3(612):p:147-172 is not listed on IDEAS

    More about this item

    Keywords

    financial conditions index (FCI); financial linkages; international business cycle transmission; vector autoregressions; global financial crisis;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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