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Did The Asset Price Bubble Matter For Japanese Banking Crisis In The 1990s?

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  • Hossain, Monzur

Abstract

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.

Suggested Citation

  • Hossain, Monzur, 2004. "Did The Asset Price Bubble Matter For Japanese Banking Crisis In The 1990s?," MPRA Paper 24738, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:24738
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    References listed on IDEAS

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    Cited by:

    1. Hossain, Monzur, 2005. "Financial Deregulation and Crisis:An ‘Agency-conflict’ Case of Japan," MPRA Paper 24856, University Library of Munich, Germany.
    2. Hossain, Monzur, 2005. "Financial Deregulations, Conflict of Interest and Banking Crisis in Japan: A Decision-theoretic-GARCH Approach to Analyze the Management Behavior," MPRA Paper 24858, University Library of Munich, Germany.

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    More about this item

    Keywords

    Japanese banking crisis; Bubble economy; and Survival analysis.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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