Hossain, Monzur (2005): Financial Deregulation and Crisis:An ‘Agency-conflict’ Case of Japan.
Download (291kB) | Preview
The main focus of this paper is on the ‘agency-conflict’ during financial deregulations in the 1980s as the potential causality of Japanese banking crisis in the 1990s. Agency conflict is defined as the conflict of interest among the policy makers and agencies (e.g. banks) that arises as a combined effect of heteroschedasticity1 of policy shifts at that time and the overall weaknesses of corporate governance of the Japanese banks. This paper theoretically and empirically tests the hypothesis that “agency-conflict” increases short-term profit and can be a potential cause of the subsequent crisis. First part of the theoretical model based on the Bayesian Learning Model explains how agency conflict can increase profit in brief and second part of the theory explains how banks can be vulnerable to crisis at the outset of the bubble. Moreover, the theoretical model is used as the basis of empirical analyses on the causes to the probability of banking crisis. The paper also provides discussion on a number of interrelated structural changes and agency-conflicting issues that occurred in the Japanese financial system. However, the analyses find that the ‘agency-conflict’ is significant to the probability of banking crisis.
|Item Type:||MPRA Paper|
|Original Title:||Financial Deregulation and Crisis:An ‘Agency-conflict’ Case of Japan|
|Keywords:||Financial deregulations, agency conflict, banking crisis, and corporate governance|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Monzur Hossain|
|Date Deposited:||10. Sep 2010 17:20|
|Last Modified:||13. Feb 2013 09:53|
Aoki, M. and Patrick, H. (eds., 1994) The Japanese Main Bank System: Its relevance for developing and tansforming economies, Clarendon Press Oxford.
Canova, F. (1995) Vector Autoregressive Models: Specificataion, Estimation, Inference and Forecasting, In H. Pesaran and M. Wickens ed. Handbook of Applied Econometrics, Vol. 1: Macroeconomics, Blackwell, pp. 73-138.
Caprio Gerand, Folkert Landan and Lane Timothy D. (1994) Building Sound Finance in Emerging Market Economics, Proceeding of a conference held in Washington D.C., June 10-11, 1993, IMF.
Cargill, Thomas F. and Shoichi Royama (1988) The transition of finance in Japan and the U.S., Stanford CA, Hoover Press. Cargill, Thomas, 2000. What caused Japan’s banking crisis? In Takeo Hoshi and Hugh Patrick, eds. Crisis and Change in the Japanese Financial System. Kluwer Academic Publisher, 37-58.
Caves R. and M. Uekusa (1976) Industrial organization in Japan, Brookings Institution.
Cox, D. R. (1972). Regression models and life tables (with discussion). J. R. Statist. Soc. B,34, 187-220.
Flood, Robert and Nancy Marion (1998) Perspective on the Recent Currency Crisis Literature, NBER working paper No. 6360, January 1998.
Ford, G. and Weston, R. (2002) Bank risk and return in the Asia pacific region: a cross country analysis, Ninth Global Finance Conference Proceedings, 2002.
Ford, J. L. et al. (2003) Bank Behavior and the Channel of Monetary Policy in Japan, 1965- 999, The Japanese Economic Review, Vol. 54, No. 3, September 2003.
Hoshi T., and A. Kashyap, (1999) The Japanese banking crisis: Where did it come from and how will it end? NBER Working Paper No. 7250, July 1999.
Hoshi, Takeo, 2001. What happened to Japanese banks? Monetary and Economic Studies, February, Bank of Japan.
Hossain, Monzur (2004) Did the asset price bubble matter for Japanese banking crisis? A paper presented at the 9th International Convention of the East Asian Economic Association, November 13-14, 2004, Hong Kong.
------------- (2005) Can Japan avert any future banking crisis? Applied Economics Letters (forthcoming).
Hossain, Monzur. and Shahiduzzaman, Md. (2002) Development of Non Bank Financial Institutions to Strengthen the Financial System of Bangladesh, Bank Parikrama, A Journal of Banking and Finance, Vol. XXVII, No. 1, March.
Hutchison, Michael and Kathleen McDill (1998) Are all banking crisis alike? The Japanese experience in international comparison, International Center for the Study of East Asian Development.
International Monetary Fund (2000) The Japanese Banking Crisis of the 1990s: Sources and Lessons, IMF working paper, January 2000.
Ito T. (1992) The Japanese Economy, MIT Press.
Jovanovic, B. and Yaw Nyarko (1995) A Bayesian Learning Model Fitted to a Variety of Empirical Learning Curves, Brookings Papers: Microeconomics 1995.
Masaharu Harazaki et al. (2004) Do large shareholders monitor or collude with banks in Japan? ADBI Research Paper Series, August 2004.
Okabe, M. (2001) Are cross-shareholding of Japanese corporations dissolving? Evolution and implications, Nissan Occasional Paper Series No. 33.
Okina K. et al. (2001) The Asset Price Bubble and Monetary Policy: Japan’s Experience in the Late 1980s and the Lessons, Monetary and Economic Studies (Special Edition), February 2001.
Rhodes, J. R. (2003) Japan’s Economic Stagnation: Interrogating the Monetary Policy Suspects, Pan-Pacific Conference 2003, May 23-30, 2003, Shanghai, PRC.
Sims, C. A. (1980) Macroeconomics and Reality,Econometrica, Vol. 48, pp. 1-48.
------ (1986) Are Forecasting Models Usable for Policy Analysis? Federal Reserve Bank of Minnepolis Quarterly Review (Winter, 1986), 3-16.
------- (1992) Interpreting the Macroeconomic Time-series Facts: The Effects of Monetary Policy, European Economic Review, Vol. 36, pp. 975-1011.
Song, I. (1998) Korean Banks’ Responses to the Strengthening of Capital Adequacy Requirements; Federal Reserve Bank of San Francisco, Working Paper, PB98-01, March.
Suzuki, Y.(1980) Money and Banking in Contemporary Japan, Yale University Press.
Suzuki, Y. (1987) The Japanese Financial System, Clarendon Press, Oxford.
Ueda, Kazuo, 2000. ‘Causes of Japan’s banking problems in the 1990s’ In Takeo Hoshi and Hugh Patrick, eds. Crisis and Change in the Japanese Financial System. Kluwer Academic Publisher, pp. 59-81.
Wallich, H. and Wallich, M. (1976) Banking and Finance, Chapter 4 of the book “ Asia’s New Giant- How the Japanese Economy Works”, eds. Patrick H. and Rosovosky, H. The Brookings Institution.
Yoshino, N. (2000) Japan’s Financial System, Asian Financial Crisis in Economic Issues in Contemporary Japan: Money, Banking and Foreign Investment, by Yoshino, N., Kuhara, M.,Lacktorin, M. and Kopp, R.; YUHIKAKU.
Yoshino, N. and Sakakibara E. (2002) The current state of the Japanese economy and remedies, Asian Economic Papers, MIT press.