Search-for-Yield under Prolonged Monetary Easing and Aging

Yoshiaki Ogura

No e142, Working Papers from Tokyo Center for Economic Research

Abstract: We find several facts that suggest the Japanese regional loan market conforms to the "search-for-yield" phenomenon, in which banks are driven to provide more risky loans by diminished loan spreads. We use a structural model to estimate demand elasticity and the degree of competition in local loan markets simultaneously. Our estimates show that competition intensifies in markets where banks hold more slack liquidity caused by monetary easing, and where loan demand is less elastic against lowering interest rates due to a rapidly aging population. We find reasonably robust evidence that banks in such competitive markets are driven to extend riskier loans.

Pages: 45 pages
Date: 2019-10
New Economics Papers: this item is included in nep-age, nep-cba, nep-mon and nep-ure
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