Financial Linkages and Business Cycles of Japan: An Analysis Using Financial Conditions Index

Jun-ichi Shinkai and Akira Kohsaka
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Jun-ichi Shinkai: Specially Appointed Researcher, Osaka School of International Public Policy (OSIPP)

No 10E008, OSIPP Discussion Paper from Osaka School of International Public Policy, Osaka University

Abstract: This paper constructs a financial conditions index (FCI) for Japan, using vector autoregressions (VAR) and impulse responses functions, and then investigate the effect of financial shocks on business cycles of Japan. Based upon our estimation results, we found that, in addition to the trade channel, the financial linkage played a significant role in Japanese business downturn caused by the current global financial crisis, and that its effect has come mainly from fallen stock prices and exchange rate appreciation, but not from credit crunch or the financial accelerator mechanism as had been the case in the recession in the early 1990s.

Keywords: financial conditions index (FCI); financial linkages; international business cycle transmission; vector autoregressions; global financial crisis (search for similar items in EconPapers)
JEL-codes: E32 E44 G17 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2010-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (7)

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