Koichiro Kamada

Import Penetration and Consumer Prices

This paper shows that changes in international competitiveness played a significant role in creating the deflationary pressure in Japan from 1980 to 2001. Applying Blanchard and Quahs (1989) SVAR technique to Dornbusch, Fischer, and Samuelsons (1977) classical comparative advantage model, we break down Japans inflation rate of the consumer prices into three kinds of structural shocks: comparative advantage shocks, global productivity shocks, and cyclical demand shocks. The breakdown results tell us that the Japanese economy had been exposed to severe international competition since 1994, especially from the Asian economies. Japans loss of international competitiveness had exerted continuous downward pressure on the consumer prices and deflationary pressure strengthened significantly at the very end of the 20th century.

A New Technique for Simultaneous Estimation of the Output Gap and Phillips Curve

A new technique to estimate simultaneously the potential output and Phillips curve is demonstrated. Here we define the potential output as the non-accelerating-inflation level of output (NLO). The NLO is not a mere trend of the actual output, but rather is a critical level of output with the following property: If the actual output is at this level, the inflation rate is neither accelerated nor decelerated. Applying our method to the data on the G7 countries, we estimate the NLO and Phillips curves and investigate their properties. It is shown that during the 1980s and 1990s, the output gap measured from the NLO was negative on average, reflecting the worldwide trend of disinflation. We also point out that the output gap has moved in accordance with corporate sentiments, and thus serves as an indicator of business conditions. In Japan, however, after the potential rate of growth dropped between 1 and 2 percent in the mid-1990s, the output gap was too volatile to allow for accurate evaluation. As for Phillips curves, a cross-country comparison shows that Japans responsiveness of inflation to the output gap is relatively weak.

How Can Leverage Regulations Work for the Stabilization of Financial Systems

The purpose of this paper is to analyze the leverage ratio requirement as currently considered by the Basel Committee on Banking Supervision from both theoretical and empirical perspectives. The key concept in this paper is the asset quality index, which is obtained by dividing the risk-based capital ratio by the gearing ratio (i.e., the inverse of the leverage ratio). Using this concept in the microeconomic framework, we can describe the behavior of banks as an optimal choice of a gearing ratio and an asset quality index. We derive theoretical implications from this model and compare them with the data on the G10 and Asian commercial banks. In so doing, we find that the leverage ratio requirement has a number of side effects, if introduced as a uniform international rule. In light of the theoretical and empirical results thus obtained, we discuss desirable uses of leverage ratios from the perspective of maintaining the stability of financial systems.

Determinants of Land-Price Movements in Japan

The purpose of this paper is to apply spatial econometrics, a new statistical tool that has recently attracted much attention, to Japanese land-price data and investigate how land-price movements are determined in Japan. A strong emphasis is put on measuring the degree of spatial correlation of land prices, the phenomenon whereby one areas land prices are correlated with another areas land prices just because the two areas are adjacent to each other. To explore this issue, we compile regional data on land prices in the 47 prefectures in Japan and in the 23 wards in Tokyo. Japanese land prices are shown to display a high degree of spatial correlation not only at the ward level, but also at the prefecture level. We also investigate the plausibility of the claim that price formation in the Japanese land market has become more dependent on economic fundamentals since the asset bubble burst in the early 1990s. We show that although this claim may hold in commercial areas in Tokyo, there is no robust evidence that it holds for the rest of Japan.

The Financial Cycle Indexes for Early Warning Exercise

This paper introduces financial cycle indexes and uses them in an early warning exercise. The indexes are based on the traditional theory of business cycles. Juglar cycles are deduced from a number of financial indicators, categorized as leading and lagging indicators, and aggregated into leading and lagging indexes. We constructed Japanese financial cycle indexes and found that they warn of the current global financial crisis about a year in advance. However, the result should be interpreted with caution, since the indexes fail to take into consideration the uncertainty surrounding real-time problems and the potential delays that may be caused by policy judgment. As a solution, we propose a scheme to forecast financial cycle indexes. According to the test results based on the Japanese data, our scheme gives advance warning of the ongoing global financial crisis.