Contained Crisis and Socialized Risk: Unconventional Monetary Policy by the Bank of Japan in the 1890s

Masaki Nakabayashi

No f165, ISS Discussion Paper Series (series F) from Institute of Social Science, The University of Tokyo

Abstract: In the 1880s, Japan experienced its first stock investment boom, which was highly leveraged by the banking sector. In 1890, its first financial crisis occurred and triggered a de-leveraging process. With a high lower bound of conventional interest rate intervention under the fixed exchange rate regime, the Bank of Japan decided to implement a massive securities purchases first time among major industrial economies and continued this unconventional policy until the early 1900s. We examine how the unconventional intervention for a decade affected the stock prices and trade volumes, and show that the upward distortion in market pricing was considerable and that the equity-risk premium accordingly dropped, which meant socialization of the risk associated with industrial investment.

Keywords: Capital market; securities purchases by the central bank; unconventional monetary policy; Bank of Japan. (search for similar items in EconPapers)
JEL-codes: G38 O16 O23 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2013-11-18, Revised 2017-02-11
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Forthcoming in Research in International Business and Finance.

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