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The "Enigma" of Japanese Policy Ineffectiveness The Limits of Traditional Approaches, Not Cyclical Policy

Journal paper - academic journal
Richard A. Werner
Japanese Economy, 30 (1), 2002, 25-95 https://doi.org/10.2753/JES1097-203X300125
Publication year: 2002

Post-Crisis Banking Sector Restructuring and Its Impact on Economic Growth

Journal paper - academic journal
Richard A. Werner
The Japanese Economy, 30 (6), 2002, 3-37
Publication year: 2002

Restructuring of the banking sector has been a major topic in Japan for at least a decade now. It is also a major and recurring topic for many policymakers in both the developed world and among developing countries. This paper examines the implications of post-crisis banking sector restructuring for economic growth. First, a relevant feature of banking activity is analyzed in a basic framework linking bank credit to the economy. Using this model, the common causes of banking crises are examined and policies on how to avoid them are suggested. Next, the dynamics of banking crises are examined and how traditional bank restructuring, as also often implemented under the auspices of international organizations, affects them. This includes an analysis of the impact of increased fiscal expenditures as part of bank reforms. Finally, a modified program of banking reform that avoids the problems of traditional policies and which considers macroeconomic stability is proposed.

Monetary Policy Implementation in Japan: What They Say vs. What they Do

Journal paper - academic journal
Richard A. Werner
Asian Economic Journal, 16 (2), 111-151 https://doi.org/10.1111/1467-8381.00145
Publication year: 2002

Abstract

Since the 1970s, many central banks – including the Bank of England, the Bank of France, the Bank of Korea and the Bank of Japan – have announced that they have ceased direct credit controls. Researchers have tended to accept ‘what they say’, without gathering empirical evidence on ‘what they do’. The Bank of Japan announced that it was abandoning direct credit controls in 1982. Since then, the monetary policy literature on Japan has focussed on formal policy tools, such as interest rates. This paper presents empirical research on the actual implementation of monetary policy by the Japanese central bank. The emphasis is on the period in the mid‐ to late‐1980s when monetary policy was stimulatory and real‐estate‐related lending expanded rapidly, and the period in the early 1990s, when asset prices fell, resulting in the subsequent banking crisis and recession. The paper first briefly surveys the literature. Empirical research is then presented in three parts. Secondary sources are accessed to gain information on the mechanism of monetary policy conduct. New field work is then presented, which uses primary sources to probe the details of monetary policy implementation. Finally, econometric evidence is gathered to test various hypotheses concerning monetary policy procedures. The research successfully establishes the details and nature of the Bank of Japan’s monetary policy implementation during the 1980s and early 1990s. The findings suggest the need for a modification of the generally prevailing view, as well as the need for further research on the actual implementation of monetary policy in other countries.

A Reconsideration of the Rationale for Bank-Centered Economic Systems and the Effectiveness of Directed Credit Policies in the Light of Japanese Evidence

Journal paper - academic journal
Richard A. Werner
Japanese Economy, 30 (3), 2002, 3-45 https://doi.org/10.2753/JES1097-203X30033
Publication year: 2002

Directed credit is seen by recent literature as having contributed to high post-war economic growth in several Asian countries, including Japan, Korea, Taiwan, Thailand, and Indonesia. Its use, however, remains controversial. This paper adopts ex ante predictive power as criterion for the evaluation of the usefulness of theories and policies. For this purpose it attempts to identify the historical rationale of the credit direction policies adopted by Japan—the East Asian country that developed earliest and most successfully. It is found that Japan’s directed credit policymakers modeled their system on the practice of the Reichsbank, under its president Hjalmar Schacht in the 1920s, and the economic thought of German development economists at the time, who argued for a strong role of banks as conduits of official guidance within an overall growth-oriented institutional design. This paper provides some support for directed credit policies and offers an alternative explanation for the emergence of a bank-based financial system in Japan and other countries.

A Discussion of Anil K. Kashyap's Paper "Sorting Out Japan's Financial Crisis"

Journal paper - academic journal
Japanese Economy, 30 (6), 2002, 61-87 https://doi.org/10.2753/JES1097-203X300661
Publication year: 2002

The purpose of this article is to discuss the paper by Anil K. Kashyap on Japan’s financial crisis (Kashyap 2002). The reader is advised to read Kashyap’s paper in parallel with this discussion, which closely follows the structure of his paper. Comments on Kashyap’s statements are made in chronological order, and using Kashyap’s section headings.

Towards a New Monetary Paradigm: A Quantity Theorem of Disaggregated Credit, with Evidence from Japan

Journal paper - academic journal
Richard A. Werner
Kredit und Kapital, 30 (2), 1997, 276-309
Publication year: 1997

Abstract

Three important “anomalies” that have occured in the 1980s in several countries, including Scandinavia and Japan, have challenged the traditional monetary model: (1) the observed velocity decline and consequent instability of the money demand function; (2) significant asset price rises, often referred to as “bubbles” and (3) enormous capital outflows from Japan in the 1980s and a sudden reversal in the 1990s. In this paper, a simple model is proposed that encompasses traditional theory and manages to explain the three main anomalies. It centres on a “quantity theory” framework of credit-money ciruclation, which is disaggregated into “real” and financial transactions. Excess credit creation in the “financial circulation” is shown to be resopnsible for asset price booms, the observed velocity decline and, in an open economy extension, foreign investment. Empirical evidence from Japan supports the model. Implications for theory, further research and policy are explored.

Japanese Foreign Investment and the “Land Bubble”

Journal paper - academic journal
Richard A. Werner
Review of International Economics, 2 (2), 1994, 166-178 https://doi.org/10.1111/j.1467-9396.1994.tb00038.x
Publication year: 1994

Abstract

The aim of this paper is to examine the determinants of Japanese net long‐term capital flows in the 1980s and early 1990s. A basic framework is proposed which takes account of Japan’s so‐called land bubble by incorporating the interaction of land with the banking sector in a macroeconomic portfolio model of capital flows. Empirical evidence is supportive of the hypothesis that land‐related bank loans have been a major determinant of Japanese net long‐term foreign investment. the hypothesis of substitution between direct and indirect foreign investment also receives support, and areas of future research are mentioned.