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Did The Asset Price Bubble Matter For Japanese Banking Crisis In The 1990s?

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  • Hossain, Monzur

Abstract

Regarding the causality of Japanese banking crisis, two views are popular: (i) slow and undirected financial deregulations in the 1980s caused trouble for the banks in adjusting with the new environment, and (ii) banks shifted their business in SME market and real estate businesses aggressively in the era of protracted monetary easing in the mid 1980s, that finally contributed to banking failures after the curbed down of asset prices. Instead of these two views, this paper shows that the continuous declining trend of banks profitability (e.g. ROA or ROE) from 1970 was a warning signal for banking crisis, which was just accelerated by the bubble burst. Without any shock (monetary or bubble phenomenon) during the later half of the 1980s, it would take some more time to reach the crisis situation. The paper also highlights some potential causes of declining trend of banks profitability. For analysis, Kaplan-Meire’s Product-Limit method is applied to estimate the survival functions and cause-specific hazard rates for the Japanese banks, along with Cox’s Proportional Hazards Model is used to find the significance of regression coefficients. Again, Accelerated failure time model is used to see whether collapse of the bubble accelerated the failure of the banks. Moreover, cointegration test and Granger causality test have been performed to identify the long- term causality of banks’ declining profitability. The issue is not only important for the Japanese economy, but also instructive for other big Asian economies.

Suggested Citation

  • Hossain, Monzur, 2004. "Did The Asset Price Bubble Matter For Japanese Banking Crisis In The 1990s?," MPRA Paper 24738, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24738
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    File URL: https://mpra.ub.uni-muenchen.de/24738/1/MPRA_paper_24738.pdf
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    References listed on IDEAS

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    1. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-679, June.
    2. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
    3. Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 249-276, November.
    4. Shahidur Rahman & Lian Hwa Tan & Ooi Lyn Hew & Yih San Tan, 2004. "Identifying Financial Distress Indicators of Selected Banks in Asia," Asian Economic Journal, East Asian Economic Association, vol. 18(1), pages 45-57, March.
    5. David C. Smith, 2002. "Loans to Japanese borrowers," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    6. Naoyuki Yoshino & Eisuke Sakakibara, 2002. "The Current State of the Japanese Economy and Remedies," Asian Economic Papers, MIT Press, vol. 1(2), pages 110-126.
    7. David C. Smith, 2002. "Loans to Japanese borrowers," Pacific Basin Working Paper Series 2002-11, Federal Reserve Bank of San Francisco.
    8. Hoshi, Takeo, 2001. "What Happened to Japanese Banks?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(1), pages 1-29, February.
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    Cited by:

    1. Hossain, Monzur, 2005. "Financial Deregulation and Crisis:An ‘Agency-conflict’ Case of Japan," MPRA Paper 24856, University Library of Munich, Germany.
    2. Hossain, Monzur, 2005. "Financial Deregulations, Conflict of Interest and Banking Crisis in Japan: A Decision-theoretic-GARCH Approach to Analyze the Management Behavior," MPRA Paper 24858, University Library of Munich, Germany.

    More about this item

    Keywords

    Japanese banking crisis; Bubble economy; and Survival analysis.;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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