The macroeconomic effects of monetary policy: Evidence from Japan

This study examines the macroeconomic effects of monetary policy in Japan. We apply the new identification strategy proposed by Bu et al. (2021) to the Japanese case and estimate monetary policy shocks that bridge periods of conventional and unconventional monetary policymaking. We show the macroeconomic effects of monetary policy; a contractionary monetary policy shock significantly decreases output and inflation rates even under the effective lower bound. However, because the shorter-term and longer-term nominal interest rates are already close to zero, the magnitude of monetary policy shocks on the macroeconomic variables is modest.     

The effects of credit lines on cash holdings and capital investment: Evidence from Japan

This study examines how credit lines affect corporate cash holdings and capital investment using a hand-collected data on publicly traded Japanese firms from 2006 to 2017. The study compares firms with and without credit lines to investigate the effects of credit lines. The empirical results are as follows: (1) Firms with credit lines hold smaller cash reserves than those without; (2) Firms with credit lines undertake more capital investment than those without; (3) The effects of credit lines are more amplified for financially constrained firms than their counterpart; (4) A close bank–firm relationship plays a positive role in the effect of credit lines on corporate activities.These empirical findings indicate that credit lines can improve firms’ financial flexibility and allow them to use cash holdings held for precautionary reasons to invest. The results also show that credit lines and the attendant implicit bank–firm relationships are complementary to each other. Moreover, having both credit lines and a close bank–firm relationship is important to Japanese firms for their corporate activities. Furthermore, the results imply that the use of credit lines is still relatively undeveloped in Japan, which may be a reason for the country's large corporate savings and lackluster investment.     

Parental income and child health in Japan

Previous studies have consistently found evidence of an income gradient in health among children in various countries, and studies in Anglo-Saxon countries have found that this gradient increases with child age. Using nationally representative individual-level data, I examine the association between child health and parental income in Japan. Japan has a child poverty rate that is similar to the rate of many countries that have been studied previously, but Japan outperforms those countries on most health indicators. I find that an income gradient exists in child health in Japan, but that it is limited to specific health measures and symptoms, and that it is weaker overall in that respect than the gradient found in other countries or among Japanese adults. Moreover, I find no evidence that the gradient increases with child age. The fact that children in low-income families have relatively modest and non-accumulating health disadvantages may contribute to the overall health of the Japanese population. Nevertheless, there is a statistically significant negative association between parental income and the incidences of asthma, hearing problems, and dental symptoms in children, implying that future efforts to improve the health of underprivileged children should focus on the prevention and control of these diseases.     

Monetary policy,cash holding and corporate investment: Evidence from China

This paper uses 13,766 firm-year observations between 2003 and 2013 from China to investigate the effects of monetary policy on corporate investment and the mitigating effects of cash holding. We find that tightening monetary policy reduces corporate investment while cash holdings mitigate such adverse effects. The cash mitigating role is especially significant for financially constrained firms, non-state-owned enterprises (non-SOEs) and those firms located in a less developed financial market. Cash holding also improves investment efficiency when monetary policy is tightening and tightening monetary policy enhances the ‘cash-cash flow’ sensitivity. Our empirical evidence calls for a critical evaluation on the monetary policies implemented in China which are less effective for state-owned enterprises. It also calls for a necessity for local government to further develop regional financial markets to protect vulnerable businesses, such as non-SOEs and financially constrained firms, from external shocks in order to maintain their sustainable growth and competitive advantages.     

The distribution of income: Evidence,theories and policy

Summary This Tinbergen Lecture begins by reviewing empirical evidence about trends in income inequality in a number of Western countries. There is considerable diversity of experience across countries. The first quarter century after the Second World War was not generally characterised by a steady downward trend in inequality, but by episodes of inequality reduction at different dates. More recently, several OECD countries have seen a rise in inequality, but the rates of increase differed and in around half of the countries shown there was no significant upward trend over the 1980s. The differing experiences, and the episodic nature of changes, have implications for the explanations of inequality considered in Sections 2 and 3 of the Lecture. I begin with the mechanism which Tinbergen described in Chapter 6 of hisIncome Distribution: the race between technological development and education. It is argued that behind the supply and demand model there lie a variety of factors, and that the explanation we give may be important in determining whether what we are observing are wagedifferentials or wageinequality. Moreover, we need to consider non-labour income, and Section 3 examines the determination of state transfers and of capital income. Finally, in Section 4, I consider some of the policy implications, focusing on one particular set of policy proposals in which Jan Tinbergen was interested: the idea of a basic income.Ninth Tinbergen Lecture delivered on September 29, 1995 at De Nederlandsche Bank, Amsterdam for the Royal Netherlands Economic Association.     

Patrilineality,fertility, and women's income: Evidence from family lineage in China

This study investigates how traditional patrilineal family institution influences women's income through fertility behavior by offering evidence from family lineage (zongzu) in China. We hypothesize that family with strong lineage—proxied by owning genealogy—has a negative effect on women's income through the son-targeting fertility behavior. Using a difference-in-differences strategy, this study confirms the hypothesis. Relative to the women whose first child is a son, the women marring into families owning genealogy indeed have more children and lower income, if their first child is a daughter. In contrast, such finding does not hold for the male sample. Preliminary evidence suggests that shorter work time can explain the findings.     

The impact of child labor on children's educational performance: Evidence from rural Vietnam

In 1998, nearly one-third of Vietnamese children engaged in non-housework labor supply, 95% of these working children residing in rural areas. This paper investigates the impact of child labor on children's educational outcomes in rural Vietnam using the 1998-Vietnam Living Standard Survey. The paper finds that child labor lowers children's academic performance and the negative impact is bigger for girls.     

Tax incentive and corporate financial performance: Evidence from income tax revenue sharing reform in China

How to stimulate corporate performance is a crucial issue of general concern in all countries. This paper examines how China’s Income Tax Revenue Sharing Reform in 2002 affects corporate financial performance. Unlike general tax policies that directly adjust the nominal tax rate or depreciation allowance, this reform indirectly affects the effective Enterprise Income Tax (EIT) rate by switching tax administration, thereby affecting corporate financial performance. We use a firm-level data-set from Annual Survey of Industrial Firms (ASIF), and test the impact by using a quasi-natural experimental design through regression discontinuity design (RDD). We find that after the reform, the effective EIT rate (ETR) of enterprises collected EIT by State Administration of Taxation (SAT) was 10% lower than that of enterprises collected EIT by the Local Administration of Taxation (LAT). If the ETR reduces by 1%, corporate financial performance, more specific, Return on Asset (ROA), increases by 1.7%. There are two available channels: increasing fixed asset investment (FAI), and alleviating external financial constraints. Additionally, the impact can be weakened for locally SOEs, large firms, firms with low SA index and those in less competitive industries.     

Economic structural changes and rural income: Evidence from Chinese provinces during the reform period

During the reform period, the Chinese rural economy has experienced deep structural changes: cropping adjustment, agro-forestry adjustment and agro-industrial adjustment. At the same time, rural per capita income rose sharply despite some fluctuations. Using a panel data of 29 provinces from 1982 to 2001, effects of these structural changes upon both income level and income instability are assessed. The empirical results show that crop adjustment and agro-industrial adjustment can increase rural income and reduce income instability, while agro-forestry adjustment reduces both income and its instability, as a risk-management strategy.     

The time-frequency analysis of conventional and unconventional monetary policy: Evidence from Japan

The effects of monetary policy on the aggregate economy is an important issue that has been addressed mainly in the time domain, and relatively little is known about how monetary policy affects the macroeconomy in the time-frequency space. With a continuous wavelet multiple coherency and partial coherency approach, this paper contributes to the literature by characterizing the macroeconomic effects of monetary policy across frequencies and over time using a monthly dataset from Japan, which is in the vanguard in the practice of unconventional monetary policy. The empirical results show that: First, interest rate changes could be largely captured by inflation fluctuations across frequencies before 1999 but only at low frequencies after 1999. Second, movements of M1 could well reflect the variations of industrial production at the scale of 2–4 years before 1999, but this relationship was reversed at the same scale after 1999. Third, changes in M2 could roughly mirror the fluctuations of inflation at the scale of 3–4 years between 1966 and 1969, and this relationship was reversed at the scale of 1–3 years between 2003 and 2007. This study indicates that in Japan conventional and unconventional monetary policy generate heterogeneous effects on the aggregate economy and the level of heterogeneity partially depends on the chosen instrument.     

Bank dependence and financial constraints on investment: Evidence from the corporate bond market paralysis in Japan

This paper investigates whether firms are able to substitute bank loans for public debt when the latter become less available to firms. To do so, this paper utilizes the 2008 financial crisis and its impact on Japanese markets as a natural experiment. Because the Japanese banking sector remained functional while the corporate bond markets were paralyzed, the data from Japan during this period provide us with an ideal environment to examine this hypothesis. I specifically examined whether firms with large holdings of corporate bonds maturing in FY2008 were financially constrained, by comparing the changes in their capital investment expenditures and borrowing conditions with those of bank-dependent firms. The main empirical results indicate that (1) firms with large holdings of corporate bonds maturing in FY2008 did not reduce investment expenditures; (2) instead, they exhibited higher increments in bank loans; and (3) firms that maintained relatively close bank-firm relationships had greater access to bank loans with low borrowing costs. These findings demonstrate that Japanese firms were able to substitute bank loans for public debt during the crisis and imply that the Japanese banking sector worked efficiently to replace public debt markets during the crisis.     

Labor market concentration and heterogeneous effects on wages: Evidence from Japan

This study provides empirical evidence of the impact of labor market concentration on wages. We find that (1) wages are suppressed in more concentrated labor markets, (2) labor rigidity is associated with wage responsiveness to labor market concentration, (3) the impact of labor market concentration on wages is smaller for firms with more competitive downstream product markets, and (4) greater job opportunities outside the manufacturing sector weaken the relationship between concentration and wages. In sum, our findings indicate that labor rigidity and the degree of competition in downstream product markets, as well as outside options, affect the relationship between market concentration and wages.     

The transmission mechanism of monetary policy in Japan: Evidence from banks' balance sheets

We examine how banks' responses to monetary policy vary according to their balance sheet using Japanese bank data from 1975 to 1999. We find that the effect of monetary policy on lending is stronger for banks that are smaller, less liquid, and more abundant with capital. The effects of bank balance sheet on monetary transmission are different by bank types, policy stances and borrowers' industries. Our results imply that a lending channel of monetary transmission exists, that the effect of expansionary monetary policy is attenuated if banks' capital is scarce, and that the effect of monetary policy on the allocation of funds depends on banks' balance sheets. J. Japanese Int. Economies 20 (3) (2006) 380–405.     

Transmission of liquidity shock to bank credit: Evidence from the deposit insurance reform in Japan

Finding the causal effects of liquidity shocks on credit supply is complicated by the endogenous relation between loan demand and liquidity position of banks. This paper attempts to overcome this problem by exploiting, as a natural experiment, the exogenous deposit outflow prompted by the removal of a blanket deposit guarantee on time deposits in Japan. We find that during the period of transition from a blanket guarantee to a partial guarantee, weak banks suffered from a large outflow of partially insured time deposits. More importantly, we find that those weak banks were not able to raise a sufficient amount of other types of deposits to make up for the loss of time deposits, which, consequently, forced them to cut back on loan supply. These results are consistent with the theory that the imperfect substitutability of insured deposits and uninsured deposits affects the tightness of banks’ financing constraints and ultimately the supply of bank loans.     

Agglomeration effects of inter-firm backward and forward linkages: Evidence from Japanese manufacturing investment in China

This paper examines the agglomeration effects of multinational firms on the location decisions of first-time Japanese manufacturing investors in China for the period 1995–2007. This is accomplished by exploiting newly constructed measures of inter-firm backward and forward linkages formed in a home country. The conditional and mixed logit estimates reveal that agglomeration by first-tier suppliers and customers draws subsequent investment into a location. However, such agglomeration effects are not pervasive and do not extend to the second and third tiers. Instead, we find that agglomeration by third-tier suppliers generates a countervailing force, making a location relatively unattractive.     

The effect of job displacement on labor market outcomes: Evidence from the Chinese state-owned enterprise reform

We estimate the long-term costs of job displacement for individuals who lost their jobs during the dramatic reform of state-owned enterprises (SOEs) in the late 1990s in China, using data from the China Health and Nutrition Survey. We find that the workers displaced during the SOE reform suffered substantial and persistent earnings losses. In addition, by comparing wage losses and reductions in employment and work hours over time, we find that the majority of long-term earnings losses were driven by declines in post-displacement wages. Moreover, we find that the displaced workers tended to find reemployment in low-skilled occupations, in the private sector, with less profitable employers, and through informal contracts, which may explain the substantial costs of displacement.     

BT-to-VAT reform and firm productivity: Evidence from a quasi-experiment in China

China recently initiated a major tax reform to convert business tax to value-added tax (BT-to-VAT reform), which opened up the tax deduction chain between industries. We used difference-in-differences model and an administrative firm-level dataset from 2011 to 2017 to explore the effect of BT-to-VAT reform on productivity. We found that in contrast to control firms, this reform increased the productivity of the treated firms by 14.6% on average. The positive effects tended to be strengthened in private, large-scale, and capital-intensive firms, as well as in firms with tight financing constraints. Moreover, these positive results of the BT-to-VAT reform appeared to be driven by its positive effect on fixed asset investment, R&D expenditure, and specialization. These findings demonstrate the transformation of tax system has multiple economic effects in developing countries.     

The long-run effects of housing location on travel behavior: Evidence from China's housing reform

Many cities in developing countries are experiencing rapid urbanization along with deteriorating traffic congestion and air quality, so it is important to understand what affects travel demand in developing countries. In this paper, we study how housing location affects travel behavior in Beijing, a city in a developing country. We use subsidized housing as a source of variation for housing location—individuals in subsidized housing live much closer to the city center than individuals in the control group. We exploit a change in the eligibility for subsidized housing generated by China's housing reforms to address the potential endogeneity of subsidized housing. We find that subsidized housing substantially reduces distances traveled for commuting and discretionary trips and that subsidized individuals are less likely to drive but have similar rates of automobile ownership. The results suggest that housing location can have long-lasting effects on travel behavior and automobile use in a developing country. We discuss policy implications of these findings.     

Taxation and educational development: Evidence from British India

This paper measures the effects of public expenditures on literacy in early 20th century British India. Using a new dataset and an instrumental variables strategy, I find that public investments in primary education had positive and statistically significant effects on literacy. A 10 percent increase in 1911 per-capita spending or 44 additional primary schools would have translated into a 2.6 percentage point increase in 1921 literacy in the population aged 15-20. The findings, however, differ by gender: the IV estimates on spending are statistically significant only for male literacy. India’s historical experience thus suggests that building more schools would not have solved the problem of female illiteracy that continues to persist even today.     

Short-term effects of policy reform on tourism and the macroeconomy in Zimbabwe: Applied CGE analysis

This article applies a short-term computable general equilibrium model for Zimbabwe to trace the direct and indirect effects of policy on the macroeconomy and tourism. The results show that the main reason why benefits from tourism are bypassing the country is because of poorly sequenced macroeconomic policies and a negative political climate. As and when the national political situation stabilises and the economy begins to grow again, an urgent macroeconomic thrust should be to implement a credible macroeconomic stabilisation programme, consisting in the main of reduced fiscal deficits, flexible foreign exchange markets and tight monetary policies to rein in inflation. However, because Zimbabwe is in arrears, there can be no programmes or lending with the International Monetary Fund and World Bank. Getting the budget in order without aid money will be very tough indeed, and the alternative is worse. It means debt deflation by means of hyperinflation.