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Heterogeneous bank loan responses to monetary policy and bank capital shocks: a VAR analysis based on Japanese disaggregated data
In this paper, we study bank loan responses to monetary policy and bank capital shocks using Japan?s disaggregated data sorted by borrower firms? size and industry. Employing a block recursive VAR, we demonstrate that bank loan responses exhibit large sectoral heterogeneity. Among a broad range of indicators about borrower firms? characteristics, the heterogeneity is tightly linked to borrower firms? liability conditions. Firms with a lower capital ratio tend to experience larger drops in bank loans following a contractionary monetary policy shock and/or a negative bank capital shock. In addition, we find that firms? substitution motive from alternative financial measures also explains the heterogeneity, while the firms? inventory motive that is stressed in the empirical literature for U.S. banks does not. Our results indicate the importance of considering a compositional shift of bank loans across borrower firms in implementing accommodative monetary policy and capital injection policy.
AUTHORS: Hogen, Yoshihiko; Hirakata, Naohisa; Sudo, Nao; Ueda, Kozo
Is the net worth of financial intermediaries more important than that of non-financial firms?
To explore the relative macroeconomic importance of financial intermediaries' (FIs?) net worth to that of non-financial firms (entrepreneurs), we extend the financial accelerator model of Bernanke, et al. (1999), such that both FIs? and entrepreneurs rely on costly external debt. Our model, which is calibrated to the U.S. economy, highlights two features of the FIs? net worth. First, the relative size of FIs' net worth as compared to entrepreneurial net worth, namely, the net- worth distribution in the economy, is important for the financial accelerator effect. Second, a shock to the FIs' net worth has greater aggregate impact than that to entrepreneurial net worth. The key reason for these findings is the low net worth of FIs? in the United States. Our results imply that the ongoing regulatory reforms that protect banks' net worth from irrational exuberance or foster its accumulation are beneficial for macroeconomic stability.
AUTHORS: Ueda, Kozo; Sudo, Nao; Hirakata, Naohisa
Japan’s financial crises and lost decades
In this paper we explore the role of financial intermediation malfunction in macroeconomic fluctuations in Japan. To this end we estimate, using Japanese data, a financial accelerator model in which the balance sheet conditions of entrepreneurs in a goods-producing sector and those of a financial intermediary affect macroeconomic activity. We find that shocks to the balance sheets of the two sectors have been quantitatively playing important role in macroeconomic fluctuations by affecting lending rates and aggregate investments. Their impacts are prominent in particular during financial crises. Shocks to the entrepreneurs balance sheets have played a key role in lowering investment in the bubble burst during the early 1990s and in the global financial crisis during the late 2000s. Shocks to the financial intermediaries balance sheets have persistently lowered investment throughout the 1990s.
AUTHORS: Ueda, Kozo; Sudo, Nao; Takei, Ikuo; Hirakata, Naohisa
Do banking shocks matter for the U.S. economy?
The quantitative significance of shocks to the financial intermediary (FI) has not received much attention up to now. We estimate a DSGE model with what we describe as chained credit contracts, using Bayesian technique. In the model, credit-constrained FIs intermediate funds from investors to credit-constrained entrepreneurs through two types of credit contract. We find that the shocks to the FIs' net worth play an important role in the investment dynamics, accounting for 17 percent of its variations. In particular, in the Great Recession, they are the key determinants of the investment declines, accounting for 36 percent of the variations.
AUTHORS: Hirakata, Naohisa; Sudo, Nao; Ueda, Kozo