Deposit Insurance Regulatory forbearance and Economic Growth: Implications for the Japanese Banking Crisis

Author/Editor:

Kenneth Kletzer ; Robert Dekle

Publication Date:

August 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

An endogenous growth model with financial intermediation demonstrates how deposit insurance and prudential regulatory forbearance lead to banking crises and growth declines. The model assumptions are based on features of the Japanese financial system and regulation. The model demonstrates how banking and growth crises can evolve under perfect foresight. The dynamics for economic aggregates and asset prices predicted by the model are shown to be generally consistent with the experience of the Japanese economy and financial system through the 1990s. We also test our maintained hypothesis of rational expectations using asset price data for Japan over the 1980s and 1990s.

Series:

Working Paper No. 2005/169

Subject:

Bank credit Banking Banking crises Deposit insurance Financial crises Financial institutions Loans Money Stocks

English

Publication Date:

August 1, 2005

ISBN/ISSN:

9781451861884/1018-5941

Stock No:

WPIEA2005169

Pages:

34

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