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Contained crisis and socialized risk

Masaki Nakabayashi ()

Research in International Business and Finance, 2017, vol. 40, issue C, 231-241

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 the 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 the 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 the industrial investment.

Keywords: Lower bound of conventional monetary policy; Unconventional monetary policy; Securities purchases by central bank; Equity-risk premium; Fixed exchange rate; Bank of Japan (search for similar items in EconPapers)
JEL-codes: G38 O16 O23 (search for similar items in EconPapers)
Date: 2017
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