Kiyotaka Nakashima

An Econometric Evaluation of Bank Recapitalization Programs with Bank- and Loan-Level Data

Public capital injections into the banking system are a comprehensive policy program aimed at reducing the financial risks faced by capital-injected banks, thereby stimulating their lending and profitability. This paper evaluates empirically Japan’s two large-scale capital injections in 1998 and 1999. We begin by extracting the treatment effects of the public injections from bank-level panel data. Using a difference-in-difference estimator in two-way fixed-effects regression models, we find that the public injections significantly reduced the financial risks faced by the capital-injected banks but did not stimulate their lending or profitability. Next, we investigate what factors impeded bank lending after the public injections using a matched sample of Japanese banks and their borrowers. By employing three-way fixed-effects regression models corresponding to the matched sample, we provide evidence that the deterioration of borrowers’ creditworthiness inhibited not only the injected banks but also the noninjected banks from lending more.

AN EXTREMELY-LOW-INTEREST-RATE POLICY AND THE SHAPE OF THE JAPANESE MONEY DEMAND FUNCTION

This paper explores the shape of the Japanese money demand function in relation to the historical path of the Bank of Japans policy rate by employing Saikkonen and Chois (2004) cointegrating smooth transition model. The nonlinear model provides a unified econometric framework, not only for pursuing the time profile of interest elasticity, but also to test the linearity of the Japanese money demand function. The test results for the linearity of the Japanese money demand function provide evidence of nonlinearity with a semi-log model and linearity with a double-log model. Using a nonlinear semi-log model, the analysis also finds that Japanese money demand comprises three regimes and that the interest semi-elasticity began to increase in the early 1990s when the Bank of Japan set the policy rate below 3%.

Ideal and Real Japanese Monetary Policy: A Comparative Analysis of Actual and Optimal Policy Measures

This paper discusses the successes and failures of Japanese monetary policy by evaluating policies from January 1980 to May 2003 in the light of optimal policy rules. First, we quantitatively conceptualize the Bank of Japan (BOJ)s policy decisions by employing Bernanke and Mihovs (1998) econometric methodology for developing monetary policy measures and term the resulting policy measure the ‘actual policy measure’. Next, assuming that the BOJ is committed to optimal policy rules, we simulate optimal policy paths, which we term ‘optimal policy measures’. We evaluate Japanese monetary policy historically by comparing actual and optimal policy measures.

Identifying Unconventional Monetary Policy Shocks

This paper proposes a method for identifying quantitative and qualitative monetary policy shocks in the balance sheet operations of a central bank. The method is agnostic and flexible as it relies on no assumptions on how the size and composition of the central bank’s balance sheet will respond after the bank makes a policy decision. We identify two types of policy shocks as “anticipated�? shocks that best portend the current and future paths of these policy instruments in response to them. We obtain evidence that qualitative easing shocks have expansionary effects on the economy while quantitative easing shocks do not.

Risk-Taking Channel of Unconventional Monetary Policies in Bank Lending

We investigate the effects of unconventional monetary policy on bank lending, using a bank-firm loan-level matched dataset from 1999 to 2015 by extracting exogenous changes in unconventional monetary policies over the past 20 years in Japan. We find that an increase in the share of unconventional assets held by the Bank of Japan boosts lending to firms with higher credit risks from banks with lower liquidity ratios and higher risk appetites while an expansion of the monetary lending to risky firms from banks with higher leverage.

Comment on Peek and Rosengren (2005) 'Unnatural Selection: Perverse Incentives and the Allocation of Credit in Japan'

Peek and Rosengren (2005) suggested the mechanism of “unnatural selection,” where Japanese banks with impaired capital increase credit to low-quality firms because of their motivation to pursue balance sheet cosmetics. In this study, we reexamine this mechanism in terms of the interaction effect in a nonlinear specification of bank lending, using data from 1994 to 1999. We rigorously demonstrate that their estimation results imply that Japanese banks allocated lending from viable firms to unviable ones regardless of the degree of bank capitalization.