Why do commercial banks hold government bonds? The case of Japan

Kazuo Ogawa and Kentaro Imai

Journal of the Japanese and International Economies, 2014, vol. 34, issue C, 201-216

Abstract: We investigate the determinants of the demand for Japanese government bonds (JGBs) by commercial banks in Japan. In particular, by estimating portfolio equations for JGB demand and bank loans, based on a panel data set from the late 1990s to the 2000s, we rigorously test the popular assertion that the long stagnation of the real economy caused a shift in the portfolios of commercial banks from bank lending to JGBs. We find that the popular assertion is not empirically supported. Rather, the portfolio shift from loans to JGBs has been caused by a fall in the ratio of the loan rate to unit lending costs, or the bank’s price–cost margin for lending.

Keywords: Japanese government debt; Portfolio choice; Loan supply; Bank’s price–cost margin; Nonperforming loans; Commercial banks (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:34:y:2014:i:c:p:201-216

DOI: 10.1016/j.jjie.2014.07.002

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