Monzur Hossain

Did the Asset Price Bubble Matter for Japanese Banking Crisis in the 1990s

Regarding the causality of Japanese banking crisis, two views are popular: (i) slow and undirected financial deregulations in the 1980s caused trouble for the banks in adjusting with the new environment, and (ii) banks shifted their business in SME market and real estate businesses aggressively in the era of protracted monetary easing in the mid 1980s, that finally contributed to banking failures after the curbed down of asset prices. Instead of these two views, this paper shows that the continuous declining trend of banks profitability (e.g. ROA or ROE) from 1970 was a warning signal for banking crisis, which was just accelerated by the bubble burst. Without any shock (monetary or bubble phenomenon) during the later half of the 1980s, it would take some more time to reach the crisis situation. The paper also highlights some potential causes of declining trend of banks profitability. For analysis, Kaplan-Meire’s Product-Limit method is applied to estimate the survival functions and cause-specific hazard rates for the Japanese banks, along with Cox’s Proportional Hazards Model is used to find the significance of regression coefficients. Again, Accelerated failure time model is used to see whether collapse of the bubble accelerated the failure of the banks. Moreover, cointegration test and Granger causality test have been performed to identify the long- term causality of banks’ declining profitability. The issue is not only important for the Japanese economy, but also instructive for other big Asian economies.

Can Japan Avert Any Future Banking Crisis

This paper suggests that the weaknesses of corporate governance are enough to explain the Japanese banking crisis in the 1990s. Bank size and lack of operating and management efficiency contributes to low return, thereby lead to the failure of the banks. Emergence and burst of the bubble in the late 1980s just accelerated the situation to an early crisis in the 1990s.

Exchange Rate Regime Transition Dynamics in Southeast Asia

This paper investigates the currency regime choices of six Southeast Asian (SEA) countries, namely Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand, for the period 1973-99 from the perspectives of optimum currency area (OCA), macroeconomic stabilization and currency crisis. Regime transition dynamics are insignificant among three broad categories of regimes, such as fixed, intermediate and floating regimes but significant among a variety of intermediate regimes. Economic development, financial liberalization and inflation are found to be significant to the pegged regime choice, while high degree of trade openness, capital mobility, real exchange rate volatility and fiscal performance are significant to the choice of a more flexible regime. However, the policy of financial (capital account) liberalization under a pegged (intermediate) regime was paradoxical in nature and has been proved to be inappropriate in the aftermath of crisis. Except this, the static regime choice in SEA countries is largely consistent with the predictions of international macroeconomics.