nep-sea New Economics Papers
on South East Asia
Issue of 2005‒06‒27
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Credit Booms in Emerging Market Economies: A Recipe for Banking Crises? By Daniel Ottens; Edwin Lambregts
  2. Repeat exposure effects of internet advertising By LEE, Janghyuk; BRILEY, Donnel A.
  3. Interventions and Japanese Economic Recovery By Takatoshi Ito
  4. Policy Coordination in East Asia and across the Pacific By Koichiro Kamada; Izumi Takagawa
  5. Reform of the Japanese Banking System By Masahiro Kawai
  6. Exchange Rate or Wage Changes in International Adjustment? Japan and China versus the United States By Ronald McKinnon
  7. Good Deflation/Bad Deflation and Japanese Economic Recovery By Gary Saxonhouse
  8. Overseas R&D Activities by Multinational Enterprises: Evidence from Japanese Firm-Level Data By Yasuyuki Todo; Satoshi Shimizutani
  9. Employment Policy and Corporate Governance: An Empirical Comparison of the Stakeholder versus the Profit-Maximization model By Naohito Abe; Satoshi Shimizutani
  10. Foreign Exchange Intervention and Monetary Policy in Japan, 2003-2004 By Rasmus Fatum; Michael M. Hutchison
  11. The Effects of 'Gesell' (Currency) Taxes in Promoting Japan's Economic Recovery By Mitsuhiro Fukao
  12. Zombie Firms and Economic Stagnation in Japan By Alan G. Ahearne; Naoki Shinada
  13. The Role of Preconceived Ideas in Macroeconomic Policy: Japan's Experiences in Two Deflationary Periods By Koichi Hamada; Asahi Noguchi
  14. Price Expectations and Consumption under Deflation: Evidence from Japanese Household Survey Data By Masahiro Hori; Satoshi Shimizutani
  15. Japan's Fiscal Policy and Fiscal Reconstruction By Toshihiro Ihori; Atsushi Nakamoto
  16. "Monetary Policy during Japan's Lost Decade" By R. Anton Braun; Yuichiro Waki
  17. "Bankruptcy Law, Corporate Finance, and Corporate Revival Process in Japan"(in Japanese) By Noriyuki Yanagawa; Sumio Hirose; Fumio Akiyoshi
  18. Credit Crunch in East Asia: A Retrospective By Masahiro Enya; Akira Kohsaka; Mervin Pobre
  19. Rational Addiction with an Optimal Inventory: Theory and Evidence from Japanese Daily and Monthly Purchases By Junmin Wan

  1. By: Daniel Ottens; Edwin Lambregts
    Abstract: This paper investigates whether credit booms are an important warning signal for banking crises in Asian and Latin American emerging market economies. Based on a signalling leading indicator model, the results suggest that credit booms are indeed a prelude for banking crises, especially in Latin America. To minimise a policymaker's loss- function, it is optimal to take precautionary actions in the event credit growth rises substantially above its trend.
    Keywords: emerging markets; credit booms and banking crises
    JEL: E44 G10 G21
    Date: 2005–06
  2. By: LEE, Janghyuk; BRILEY, Donnel A. (Hong Kong University of Science and Technology)
    Abstract: In this paper, we explain the repeat exposure effect of Internet advertising. By using a field data set of 34 advertising campaigns, we analyze functional forms of the repeat exposure effect of Internet advertising. Among four ad effectiveness measures including aided brand awareness, message recall, brand opinion (favorability), and purchase intent, only message recall shows substantial differences between control and exposures groups. Two patterns of repeating exposure effect on message recall are found: the one in monotonically increasing with a decreasing rate and the other in a quadratic form of inverted 'U'-shape with 'wearout' effect.
    Keywords: Internet; Advertising; Repeat exposure; Message recall
    JEL: M37
    Date: 2005–04–01
  3. By: Takatoshi Ito
    Abstract: This paper attempts to explain possible reasons and objectives behind the 35 trillion yen (7% of GDP) interventions conducted by the Japanese monetary authorities from January 2003 to March 2004, and to discuss whether the interventions achieved the presumed objectives: making the movement of the yen flexible but orderly, and helping economic recovery. The motivation of starting intervention in January 2003 was to keep the yen from appreciating in the midst of financial and macroeconomic weakness. The economy started to show some strength in the second half of 2003, but interventions continued, with a brief pause in September. Reasons for interventions after September are two-fold. First, the interventions provided opportunities for unsterilized interventions. Second, the monetary authorities were extremely sensitive to speculative activities in the market.
    Keywords: Intervention of foreign exchange market, the yen, monetary policy, Japanese economy
    JEL: E44 E58 F31
    Date: 2005–06
  4. By: Koichiro Kamada; Izumi Takagawa
    Abstract: In this paper, we construct a macro-econometric model that describes the economic activity in the Asia-Pacific area and provide quantitative insights into the recent policy debates on monetary and currency coordination among the East Asian economies. The model includes a wide variety of monetary and currency policy rules that the East Asian economies adopt and allows for one country's policymaking to have substantial effects on foreign countries. We apply the model to three current policy issues: (1) the desirability of currency basket pegs in East Asia, (2) the anticipated effects of China's currency policy reform, and (3) the non-negativity constraint on Japanese nominal interest rates. The simulation analyses show the external economy effects of policy rules quantitatively and suggest the difficulty of monetary and currency policy coordination among the East Asian economies.
    Date: 2005–06
  5. By: Masahiro Kawai
    Abstract: Japan has experienced a decade-long economic stagnation with a distressed banking sector in the 1990s. The absence of a credit culture to rigorously assess and price credit risks of borrowers, aggravated by weak prudential and supervisory frameworks, in the 1980s, the collapse of the asset price bubble in the early 1990s, and the lack of decisive, comprehensive strategy to address the banking sector problem at an early stage were largely responsible for the emergence of banking sector problems. All of these allowed a systemic banking crisis to emerge in 1997-98 and a large output loss during 1998-2002. The crisis ultimately prompted the government to take a more aggressive policy to tackle the problem. Sufficient progress has been made since then on banking sector stabilization, restructuring, and consolidation. The regulatory and supervisory framework has been strengthened in a way consistent with an increasingly market-oriented, globalized environment. As a result, the worst is over in the Japanese banking system, setting the stage for sustained economic recovery. Though bank capital may still be inadequate, safety nets are in place, the credit allocation has been made more rational. Remaining risks are limited to regional and smaller institutions that are vulnerable to weak, local economic conditions and hikes of the long-term interest rate.
    Keywords: Asset price bubble, Japan's "lost decade", systemic banking sector crisis, bank restructuring and consolidation, market-based regulatory and supervisory framework
    JEL: E44 E51 G21 G28
    Date: 2005–06
  6. By: Ronald McKinnon
    Date: 2005–06
  7. By: Gary Saxonhouse
    Abstract: Many economists dismiss the role of positive supply shocks as a cause of Japan's deflation. Indeed, they attribute the long delay in Japan's recovery to the mistaken view that Japan's deflation reflects an acceleration of technological progress. Whatever the current situation in Japan, however, economic history certainly suggests that technological progress can go hand in hand with general deflation. Conducting a VAR analysis using very detailed information about the components of Japan's consumer price index, this paper finds that short-run shocks to Japan's relative price structure persist in the long run. Given this finding, it is possible to conclude that such shocks are real in origin and reflect technological change. As no effort has yet been completed to show the full extent to which technological change is driving short-run relative price change in Japan compared with other factors, and the full extent to which relative price changes are driving aggregate price change compared with other factors, the policy implications of these findings are unclear. What is clear is that it is a mistake to dismiss out of hand the possibility that technological shocks are playing an important role among other forces in Japan's current deflation.
    Date: 2005–06
  8. By: Yasuyuki Todo; Satoshi Shimizutani
    Abstract: This paper investigates both the determinants and the impact of overseas subsidiaries' R&D activities, using firm-level panel data for Japanese multinational enterprises. We distinguish between overseas innovative and adaptive R&D and find substantial differences between the two types of R&D. The evidence suggests that overseas innovative R&D aims at the exploitation of foreign advanced knowledge, and by doing so, it helps to raise the productivity of the parent firm. In contrast, the primary role of overseas adaptive R&D is to enhance the productivity of overseas subsidiaries through the use of parent firms' knowledge. In addition, we find no complementarity between home and overseas innovative R&D, i.e., no evidence that overseas innovative R&D raises the marginal effect of home R&D on home productivity.
    Keywords: overseas R&D activities, multinational enterprises, total factor productivity
    JEL: F23 O30
    Date: 2005–05
  9. By: Naohito Abe; Satoshi Shimizutani
    Abstract: Japan's economic problems over the past decade and a half have triggered far reaching changes in the country's corporate governance system and there have been significant changes in both companiesf ownership structures and composition of board members. This paper examines how board and ownership structures affect firms' decision as to how to reduce labor costs when firms face excess employment. Our findings confirm that outside directors are more inclined to implement layoffs and voluntary or early retirement, while insiders are more likely to decrease new hiring and protect incumbent employees. These findings are consistent with the stakeholder view of the firm rather than the neoclassical view of firms as profit-maximizers.
    Keywords: corporate governance, employment downsizing, multivariate probit model
    JEL: G30 J23
    Date: 2005–06
  10. By: Rasmus Fatum; Michael M. Hutchison
    Date: 2005–06
  11. By: Mitsuhiro Fukao
    Abstract: The traditional interest rate policy has lost its potency due to the zero-lower bound of nominal interest rates and the gradual accelerating deflation in Japan. Without stopping deflation, the Japanese government may face a rapid erosion of credit worthiness due to an uncontrolled budget deficit. In order to cope with this unusual situation, a non-traditional monetary policy measure is proposed. A negative nominal interest rate is needed to clear Japanese markets and can be achieved by levying a tax on all the government-guaranteed yen financial assets. This is a modified version of Gesell's stamp duty on currency for actual implementation in the contemporary context. The benefits and side effects of this tax for Japan are analyzed here.
    Date: 2005–06
  12. By: Alan G. Ahearne; Naoki Shinada
    Abstract: It is often claimed that one contributing factor to Japan's weak economic performance over the past decade is that Japanese banks have continued to provide financial support for highly inefficient, debt-ridden companies, commonly referred to as "zombie" firms. Such poor banking practices in turn prevent more productive companies from gaining market share, strangling a potentially important source of productivity gains for the overall economy. To explore further the zombie-firm hypothesis, we use industry- and firm-level Japanese data and find evidence that productivity growth is low in industries reputed to have heavy concentrations of zombie firms. We also find that the reallocation of market share is going in the wrong direction in these industries, adding to already weak productivity performance. In addition, we find evidence that financial support from Japanese banks may have played a role in sustaining this perverse reallocation of market share.
    Keywords: Productivity, banking system, creative destruction
    Date: 2005–06
  13. By: Koichi Hamada; Asahi Noguchi
    Abstract: This paper examines the role of misleading economic ideas that most likely promoted the economic disasters of the two deflationary periods in Japanese economic history. Misleading ideas deepened the depression during the interwar years, and erroneous thinking has prolonged the stagnation of the Japanese economy since the 1990s. While the current framework of political economy is based on the self-interest of political agents as well as of voters, we highlight the role of ideas in policy making, in particular, in the field of macro-economy where the incidence of a particular policy is not clear to the public. Using two significant examples, this paper illustrates the role of preconceived ideas, in contrast to economic interests, as dominant forces influencing economic policy making.
    Date: 2005–06
  14. By: Masahiro Hori; Satoshi Shimizutani
    Abstract: The Japanese economy has experienced price deflation since the mid-1990s. Despite the importance of overcoming deflation, there has been little recent research on price expectations in Japan. This paper takes advantage of an original and rich quarterly household-level data set from the gKokumin Seikatsu Monitorsh to estimate average price expectations, examine the factors that affect price expectations, and examine how changes in price expectations have affected household consumption. Our estimates indicate that average price expectations ranged from minus 0.2 to zero percent in 2001 and 2002. However, there was an increase to 1 percent in the first quarter of 2003, followed by a decline to 0.2 percent in the second quarter, and a steady increase toward 0.8 percent by the first quarter of 2004. Price expectations depend on current price movements and lagged expectations. A series of quantitative easing monetary policies were not very effective in changing the price expectations, since the policy announcements caused revision of price expectations only for a small portion, i.e., 5-10% of people surveyed. The jump observed in the first quarter of 2003 was a reaction to the outbreak of the Iraq war. Our study also confirms that deflationary expectations discourage household consumption, mainly durable consumption, by delaying the timing of purchases, suggesting that the deflationary expectations should be upwardly revised to restore a vital Japanese economy.
    Date: 2005–06
  15. By: Toshihiro Ihori; Atsushi Nakamoto
    Abstract: This paper investigates the macroeconomic effects of fiscal policy and the fiscal reconstruction movement in Japan. We first summarize Japan's fiscal policy in recent years and discuss advantages and disadvantages of government deficits. Next, we investigate the macroeconomic effects of Japanese fiscal policy and evaluate the plausibility of non-Keynesian effects. We also analyze the possibility of the crowding-in effect of fiscal policy and investigate the spillover effects of deregulation. Finally, we discuss political constraints in the fiscal reconstruction attempts and propose some measures for successful fiscal reforms in the near future.
    Date: 2005–06
  16. By: R. Anton Braun (Faculty of Economics, University of Tokyo); Yuichiro Waki (Graduate School of Economics, University of Tokyo)
    Abstract: We develop a quantitative costly price adjustment model with capital formation for the Japanese Economy. The model respects the zero interest rate bound and is calibrated to reproduce the nominal and real facts from the 1990s. We use the model to investigate the properties of alternative monetary policies during this period. The setting of the long-run nominal interest rate in a Taylor rule is much more important for avoiding the zero bound than the setting of the reaction coefficients. A long-run interest rate target of 2.3 percent during the 1990s avoids the zero bound and enhances welfare.
    Date: 2005–05
  17. By: Noriyuki Yanagawa (Faculty of Economics, University of Tokyo); Sumio Hirose (Faculty of Economics, Sinshu University); Fumio Akiyoshi (Graduate School of Economics, University of Tokyo)
    Abstract: This paper examines corporate revival processes in Japan. In recent years, corporate revival processes are drastically changing in Japan. For example, important bankruptcy laws have been revised and Industrial Revitalization Corporation was established. Moreover, many corporate revival funds are actively investing. This paper explains those new movements and examines how those new activities will change the Japanese economy.
    Date: 2005–06
  18. By: Masahiro Enya (Faculty of Politics, Economics and Law, Osaka International University); Akira Kohsaka (Osaka School of International Public Policy, Osaka University); Mervin Pobre (Osaka School of International Public Policy, Osaka University)
    Abstract: In this paper, we explore the issue on credit crunch from a comparative perspective. Utilizing longer time series data, we investigate the existence of credit crunch in selected crisis-hit economies in East Asia over the period 1980-2002. We detected some episodes of credit crunch both before and after the Asian economic crisis. These episodes after the Crisis are somewhat different from those detected by previous studies on the issue. We, then, review the credit-crunch episodes in the broad macroeconomic context in order to assess our results in the longer-run perspective. We are well aware that financial liberalization has changed the financial environments of these countries more or less in due course. Even so, the mixed results we obtained on the existence of credit crunch do not suggest that the impact of the austerity programs on financial intermediation after the Asian Crisis was ambiguous. On the contrary, they implied that the impact of the programs were so severe that credit crunch or supply retrenchment was overwhelmed by a sharp fall in credit demand because of real and expected persistent overall economic depression.
    Keywords: human capital; credit crunch, East Asia, Asian Economic Crisis, disequilibrium analysis
    JEL: E5 O11 O53
    Date: 2004–03
  19. By: Junmin Wan (Graduate School of Economics, Institute of Social and Economic Research, Osaka University)
    Abstract: A rational addiction model with an optimal inventory is developed and can be used as a new way to distinguish consumption from purchases when there is perfect foresight concerning price. The theoretical framework is tested using daily and monthly cigarette purchases in Japan. In Japan, the central government controls the price of cigarettes; this can be considered a natural experiment. The rational addiction model is not supported when inventory is not considered, as the inventory becomes an omitted variable and correlates with price and tax, while it is supported if the optimal inventory is included in the estimating equation. The timing of hoarding is clarified theoretically and empirically.Since the tax elasticity of hoarding exceeds 400 percent, the hoarding effect is very large just before a tax or price increase; a tax increase, therefore, is considered a good tool for temporary economic stimulation.
    Keywords: addiction, hoarding, tax increase, omitted variable
    JEL: C12 D11 D12 H31
    Date: 2004–01

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