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Abstract

Vol. 53, No. 2, pp. 117-133 (2002)

“The Transmission of Monetary Policy through Borrower's Balance Sheets -Evidence from Panel Data on Japanese Firms-”
Kaoru Hosono (Faculty of Economics, Nagoya City University), Tsutomu Watanabe (The Institute of Economic Research, Hitotsubashi University)

We study the monetary-transmission mechanism through borrowers' balance sheets using a panel of Japanese firms. We conduct a two-step regression. We first run a cross-section regression in each year to estimate the degree to which firms' investment behavior is constrained by the amount of their net worth, and then run a time-series regression to see how it is related with monetary policy shocks. We find that firms' investment behavior tends to be constrained more strongly by the amount of their net worth during the periods of monetary tightening. We fail to find evidence that the constraint of net worth became stronger in the 1990s, which contradicts the view that the slump of investment during that period was caused by the deterioration of firms' balance sheets.