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Type Journal Article
Scope Discipline-based scholarship
Title ‘By a silken thread’: regional banking integration and credit reallocation during Japan's lost decade
Organization Unit
Authors
  • Mathias Hoffmann
  • Toshihiro Okubo
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title Journal of International Economics
Publisher Elsevier
Geographical Reach international
ISSN 0022-1996
Volume 137
Page Range 103579
Date 2022
Abstract Text Regional banking integration allows credit to be reallocated to regions with high credit demand. Using the natural experiment of Japan's lost decade, we show that this reallocation channel mitigated the real effects from the bank liquidity shock in prefectures with many bank-dependent small firms. We propose an instrument for modern-day regional banking integration that exploits the fact that regional segmentation of banking markets in Japan goes back to the institutions set up for silk export finance in the late 19th century. We illustrate how the difference between the OLS and IV estimates can provide information about unobserved cross-regional heterogeneity in bank-firm matches when only aggregate regional data is available. Our results highlight that well-integrated banking markets are important and complementary to bond markets in limiting macroeconomic asymmetries in a monetary union, in particular during major financial crises.
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Digital Object Identifier 10.1016/j.jinteco.2022.103579
Other Identification Number merlin-id:23122
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Keywords Economics and Econometrics, finance, Japan, lost decade, banking integration, regional business cycles, transmission of financial shocks, bank lending channel, firm-borrowing channel, reallocation channel, internal capital markets, monetary union
Additional Information Earlier published as ECON Working Paper No. 102