Contained crisis and socialized risk: Unconventional monetary policy by the Bank of Japan in the 1890s |
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Affiliation: | Institute of Social Science, The University of Tokyo, Hongo 7-3-1, Tokyo 103-0033, Japan |
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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. |
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Keywords: | Lower bound of conventional monetary policy Unconventional monetary policy Securities purchases by central bank Equity-risk premium Fixed exchange rate Bank of Japan |
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