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Financial Linkages and Business Cycles of Japan: An Analysis Using Financial Conditions Index

Author

Listed:
  • Jun-ichi Shinkai

    (Specially Appointed Researcher, Osaka School of International Public Policy (OSIPP))

  • Akira Kohsaka

    (Professor, Osaka School of International Public Policy (OSIPP))

Abstract

This paper constructs a financial conditions index (FCI) for Japan, using vector autoregressions (VAR) and impulse responses functions, and then investigate the effect of financial shocks on business cycles of Japan. Based upon our estimation results, we found that, in addition to the trade channel, the financial linkage played a significant role in Japanese business downturn caused by the current global financial crisis, and that its effect has come mainly from fallen stock prices and exchange rate appreciation, but not from credit crunch or the financial accelerator mechanism as had been the case in the recession in the early 1990s.

Suggested Citation

  • Jun-ichi Shinkai & Akira Kohsaka, 2010. "Financial Linkages and Business Cycles of Japan: An Analysis Using Financial Conditions Index," OSIPP Discussion Paper 10E008, Osaka School of International Public Policy, Osaka University.
    • Handle: RePEc:osp:wpaper:10e008
    as

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    File URL: http://www.osipp.osaka-u.ac.jp/archives/DP/2010/DP2010E008.pdf
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    References listed on IDEAS

    as
    1. Michael B Devereux & James Yetman, 2010. "Financial deleveraging and the international transmission of shocks," BIS Papers chapters, in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 274-298, Bank for International Settlements.
    2. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148, Elsevier.
    3. Stéphanie Guichard & David Haugh & David Turner, 2009. "Quantifying the Effect of Financial Conditions in the Euro Area, Japan, United Kingdom and United States," OECD Economics Department Working Papers 677, OECD Publishing.
    4. Mr. Andrew J Swiston, 2008. "A U.S. Financial Conditions Index: Putting Credit Where Credit is Due," IMF Working Papers 2008/161, International Monetary Fund.
    5. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 869-902.
    6. Philip R Lane & Gian Maria Milesi-Ferretti, 2011. "The Cross-Country Incidence of the Global Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 77-110, April.
    7. Jan Hatzius & Peter Hooper & Frederic S. Mishkin & Kermit L. Schoenholtz & Mark W. Watson, 2010. "Financial Conditions Indexes: A Fresh Look after the Financial Crisis," NBER Working Papers 16150, National Bureau of Economic Research, Inc.
    8. Kimberly Beaton & René Lalonde & Corinne Luu, 2009. "A Financial Conditions Index for the United States," Discussion Papers 09-11, Bank of Canada.
    9. Céline Gauthier & Christopher Graham & Ying Liu, 2004. "Financial Conditions Indexes for Canada," Staff Working Papers 04-22, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Margarita Debuque-Gonzales & Maria Socorro Gochoco-Bautista, 2017. "Financial Conditions Indexes and Monetary Policy in Asia," Asian Economic Papers, MIT Press, vol. 16(2), pages 83-117, Summer.
    2. Rémy Charleroy & Michael A. Stemmer, 2014. "An Emerging Market Financial Conditions Index: A VAR Approach," Documents de travail du Centre d'Economie de la Sorbonne 14068, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. Sithole, Thanda & Simo-Kengne, Beatrice D. & Some, Modeste, 2017. "The role of financial conditions in transmitting external shocks to South Africa," International Economics, Elsevier, vol. 150(C), pages 36-56.
    4. repec:idn:journl:v:21:y:2019:i:3:p:1-20 is not listed on IDEAS
    5. Manamani SAHOO, 2017. "Financial conditions index (FCI), inflation and growth: Some evidence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(612), A), pages 147-172, Autumn.

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    More about this item

    Keywords

    financial conditions index (FCI); financial linkages; international business cycle transmission; vector autoregressions; global financial crisis;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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