Absence of Safe Assets and Fiscal Crisis

This paper provides a fiscal crisis model that explains the low interest rates of Japanese government bonds. The key ingredient is the absence of safe assets in the sense that investors have no access to any asset that hedges fiscal risk. The interest rate is insensitive to any change in fiscal conditions and does not fully reflect the risk premium. This finding explains the low interest rates of Japanese government bonds even though the risk of fiscal default looks fairly high. The poorly-functioning bond market created in this way contributes to the low interest rate followed by a low default probability, and allows the government to sustain its large debt. This finding explains the mechanism under which the low interest rate coexists with Japan’s large outstanding debt. Welfare implications are mixed. The well-functioning bond market does not always contribute to welfare enhancement because the market makes it difficult to sustain the debt. We show the implications for fiscal sustainability of some policies, such as financial market reforms and growth enhancement policies

Monetary Policy and Transmission of Bubbles

The aim of this paper is to investigate the optimal monetary policy when bubbles boost and burst. The monetary policy in the form of open market operation has real effects, that is, influences the growth in investment and the size of bubbles. The central bank faces a trade-off between stimulating investment and appreciating bubbles. The optimal policy is contingent on the state of bubbles. When bubbles arise, the central bank may maintain or gives up easing, depending on how it puts weight on the state of the bursting of bubbles, while when bubbles burst, the central bank takes an easing policy. The optimal policy is the same irrespective of whether foreign capital inflows are allowed for unless capital markets are severely restricted

Bubbles and crowding-in of capital via a savings glut

This paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the extensive margin. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path after bubbles are injected

Stochastic Characterization of Bernanke and Gertler (1989, AER)

この論文では,Bernanke and Gertler (1989, AER)の確率的動学モデルの分析を通じて,銀行部門の不安定性と景気循環の相互作用のメカニズムを明らかする.銀行がマクロショックに直面しかつそのリスクを預金者に移転できないとき,マクロリスクは銀行部門を直撃する.銀行と借り手企業家だけでなく銀行と預金者との間にもインセンティブ問題が発生し,預金者による銀行取り付けが最適契約の一部として導かれる.取り付けによって生じる資本の喪失と借り手の自己資本の減少が引き起こす負のバランスシート効果の相互作用が景気の変動を生み出す.バランスシート効果のみに焦点を当てているBernanke and Gertlerが描写した世界よりも,不況はより持続的にかつ深刻になることが明らかにされる.I characterize a dynamic stochastic model of Bernanke and Gertler (1989, AER). The stochastic dynamic model provides a benchmark for understanding the interaction between business fluctuations and widespread bank failures that happen when banks cannot offer contracts contingent on aggregate states to their depositors. Bank runs occur as a part of optimal contracts in the adverse aggregate state even if they are socially wasteful. The interaction between costly liquidation of capital in case of runs and the adverse balance sheet effect makes recessions more devastating and long-lasting than the economy analyzed by Bernanke and Gertler

Does a Large Loss of Bank Capital Cause Evergreening? Evidence from Japan

Abstract Using the real estate lending share of the bank's loan portfolio at the peak of the land price bubble as an instrument for bank capital, we identify the impact of capital adequacy on the allocation of bank lending under the Basel regulatory framework. We find that, in Japan, a large loss of bank capital caused by the regulator's excessively tough stance towards banks not only induced the contraction of the bank lending supply but also the banks' reallocation of their lending portfolios to financially unhealthy industries with a higher concentration of non-performing loans. Keywords: evergreening, bank capital, real estate lending, instrumental variable JEL classification: C31, G21 * I am greatly indebted to Ben Bernanke for his continuous advise, support, and extensive comments. I would like to thank Han Hong, Takeo Hoshi (an editor), Charles Yuji Horioka, Vasso Ioannidou (the designated discussant at the workshop, "Risk Management and Regulation in Banking" held at the Basel Committee for Banking Supervision) Anil K. Kashyap, Miles Kimball, Keiichiro Kobayashi, Jean-Phillip Laforte, Guido Lorenzoni, Yoichi Nemoto, Masaya Sakuragawa, Gary Saxonhouse and Greg Udell and an anonymous referee for useful comments and suggestions. I also benefited from the comments of seminar participants at the Princeton Macro/International Student Workshop, Ban

Does a Large Loss of Bank Capital Cause Evergreening? Evidence from Japan

Abstract Using the real estate lending share of the bank's loan portfolio at the peak of the land price bubble as an instrument for bank capital, we identify the impact of capital adequacy on the allocation of bank lending under the Basel regulatory framework. We find that, in Japan, a large loss of bank capital caused by the regulator's excessively tough stance towards banks not only induced the contraction of the bank lending supply but also the banks' reallocation of their lending portfolios to financially unhealthy industries with a higher concentration of non-performing loans