The Macroeconomic Impact of Revitalising the Japanese Banking Sector

13 Pages Posted: 25 Apr 2005

See all articles by Katie Farrant

Katie Farrant

Bank of England - Monetary Analysis

Bojan Markovic

EBRD - Economics, Policy and Governance; University of Birmingham

Gabriel Sterne

Bank of England

Abstract

In this article we assess the possible macroeconomic effects of proposals to revitalise the banking system in Japan. Our analysis is supported by a theoretical model that incorporates various interactions between the banking sector and the wider economy. In the long run, a planned reduction in the ratio of non-performing loans (NPLs) to total loans and the intended fall in the risk premium faced by Japanese banks may help to boost the level of investment. Achieving a revitalised banking system cannot be done costlessly, however, and our model suggests that there may be some negative short-run macroeconomic impact as credit growth is reduced.

Suggested Citation

Farrant, Katie and Markovic, Bojan and Sterne, Gabriel, The Macroeconomic Impact of Revitalising the Japanese Banking Sector. Bank of England Quarterly Bulletin, Winter 2003, Available at SSRN: https://ssrn.com/abstract=706838

Katie Farrant (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Bojan Markovic

EBRD - Economics, Policy and Governance ( email )

One Exchange Square
London EC2A 2JN
United Kingdom

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

Gabriel Sterne

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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