Publications (E)

Hirata, Hideaki. 2014. “Preference Shocks, International Frictions, and International Business Cycles.” Journal of Asian Economics 34: 92-104 . Publisher's Version Abstract

AbstractReplicating the degree of cross-country comovements of macroeconomic aggregates, dynamics of prices and quantities of international trade, and the behavior of consumption and labor remains an important challenge in international business cycle literature. This paper incorporates preference shocks into a standard two-country model in which there exist international frictions, such as costs of transportation and restrictions to international asset trade. Country-specific preference shocks that generate fluctuations in each country's consumption and labor solve the puzzles, except for the discrepancy between theory and data regarding international trade variables. The presence or absence of international frictions plays a limited role in solving the puzzles.

This paper examines the ex-post performance of small and medium enterprises (SMEs) that obtained small business credit scoring (SBCS) loans, using a unique Japanese firm–bank matched dataset. The ex-post probability of default after the SBCS loan was provided significantly increased for SMEs that obtained an SBCS loan from a transactional lender. Also, the lending attitude of relationship lenders during the recent global financial crisis was more severe if a firm had received an SBCS loan from a transactional lender. These findings suggest that SBCS loans by transactional lenders are more prone to type II errors and detrimental to relationship lenders’ incentive to provide “liquidity insurance.
Hasumi, Ryo, and Hideaki Hirata. 2014. “Small Business Credit Scoring and Its Pitfalls: Evidence from Japan.” Journal of Small Business Management 52 (3): 555-568. Publisher's Version Abstract

This paper studies the Japanese credit scoring market using data on 2,000 small and medium-sized enterprises and a small business credit scoring (SBCS) model widely used in the market. After constructing a model for determining a bank's profit maximization, some simulation exercises are conducted, and pitfalls of lending based on SBCS are indicated. The simulation results suggest that the reason why SBCS loan losses occur would be the combination of adverse selection and window-dressing problems. In addition, omitted variable bias and transparency of financial statements are important.

Yamamoto, Ryuichi, and Hideaki Hirata. 2013. “Strategy Switching in the Japanese Stock Market.” Journal of Economic Dynamics and Control 37 (10): 2010–2022. Publisher's Version Abstract
This paper investigates the expectation formation process of Japanese stock market professionals. By utilizing a monthly forecast survey dataset on the TOPIX distributed by QUICK Corporation, we sort forecasters into buy-side and sell-side professionals. We empirically demonstrate that the buy-side and sell-side professionals use either fundamental or trend-following strategies throughout their expectation formation processes and that they switch between fundamental and trend-following strategies over time. We also discuss that strategy switching can be key in understanding the persistent deviation of the TOPIX from the fundamentals.
Hirata, Hideaki, Ayhan M Kose, and Chris Otrok. 2013. “Regionalization vs. Globalization.” Global Interdependence, Decoupling, and Recoupling, 87-130. MIT Press. Publisher's Version Abstract
Both global and regional economic linkages have strengthened substantially over the past quarter century. We employ a dynamic factor model to analyze the implications of these linkages for the evolution of global and regional business cycles. Our model allows us to assess the roles played by the global, regional, and country-specific factors in explaining business cycles in a large sample of countries and regions over the period 1960–2010. We find that, since the mid-1980s, the importance of regional factors has increased markedly in explaining business cycles especially in regions that experienced a sharp growth in intra-regional trade and financial flows. By contrast, the relative importance of the global factor has declined over the same period. In short, the recent era of globalization has witnessed the emergence of regional business cycles.
Hirata, Hideaki, Ayhan M Kose, Chris Otrok, and Marco Terrones. 2013. “Global House Price Fluctuations: Synchronization and Determinants.” NBER International Seminar on Macroeconomics 2012, 119-166. University of Chicago Press. Publisher's Version Abstract

We examine the properties of house price fluctuations across eighteen advanced economies over the past forty years. We ask two specific questions: First, how synchronized are housing cycles across these countries? Second, what are the main shocks driving movements in global house prices? To address these questions, we first estimate the global components in house prices and various macroeconomic and financial variables. We then evaluate the roles played by a variety of global shocks, including shocks to interest rates, monetary policy, productivity, credit, and uncertainty, in explaining house price fluctuations using a wide range of FAVAR models. We find that house prices are synchronized across countries, and the degree of synchronization has increased over time. Global interest rate shocks tend to have a significant negative effect on global house prices whereas global monetary policy shocks per se do not appear to have a sizeable impact. Interestingly, uncertainty shocks seem to be important in explaining fluctuations in global house prices.

Yamamoto, Ryuichi, and Hideaki Hirata. 2012. “Belief Changes and Expectation Heterogeneity in Buy- and Sell-Side Professionals in the Japanese Stock Market.” Pacific-Basin Finance Journal 20 (5): 723–744. Publisher's Version Abstract
We document the determinants of the expectation heterogeneity of stock price forecasters on TOPIX. Monthly panel data collected by QUICK Corporation in the Nikkei Group via surveys is utilized in the process. We examine the determinants of expectation heterogeneity by categorizing our sample into buy-side and sell-side professionals and demonstrate that the co-existence of different types of professionals contributes to the expectation heterogeneity. We show that buy-side and the sell-side professionals, who possess different business goals, differentiate the information contents as well as their interpretations of the same information in their forecasts, contributing to the expectation heterogeneity. In addition, we investigate the interactive expectation formulation of buy-side and sell-side professionals and find that buy-side professionals incorporate the sell side's ideas regarding future stock prices into their own forecasts, but refer exclusively to their own ideas when relating foreign exchange rates to future stock prices. Meanwhile, sell-side professionals tend to utilize buy-side professionals' ideas about future prices in order to improve their research and ingratiate themselves to their clients, that is, to the buy-side professionals. We demonstrate that this interactive expectation formulation also contributes to the generation of the expectation heterogeneity.
In this paper, we construct a two-country business cycle accounting model in order to investigate quantitatively the relationship between Japan and the Asian Tigers. Our model is based on Backus, Kehoe and Kydland (1994) in which each economy produces tradable intermediate goods that are aggregated to form final goods within each economy. We apply the business cycle accounting method of Chari, Kehoe and McGrattan (2007) and find that the main source of high frequency fluctuation in output in each economy is the fluctuation of production efficiency within its own economy. Furthermore, the growth in the Asian Tigers'production efficiency had a significant positive effect on Japanese economic growth over the 1980-2009 period through the endogenous terms of trade effect.
Kim, Sunghyun Henry, and Ayhan M Kose. 2007. “Sources of Fluctuations.” Emerging Markets Finance and Trade 43 (1): 5-34. Publisher's Version Abstract
We analyze the sources of macroeconomic fluctuations in the emerging countries in the Middle East and North Africa (MENA) region using a dynamic stochastic general equilibrium model. The model economy captures some important structural characteristics of the MENA countries and can replicate the main properties of their business cycles. The results suggest that a substantial fraction of cyclical fluctuations in the MENA countries is explained by terms of trade shocks, which account for more than 60 percent of the variation in aggregate output. They also explain the bulk of cyclical fluctuations in aggregate consumption. Domestic productivity shocks explain close to 40 percent of business cycle variation in aggregate output. Government spending shocks and world interest shocks are also important in accounting for the volatility of business cycles in certain macroeconomic variables, but their overall effect on the dynamics of aggregate output appears to be relatively small.

The malfunction of the monetary transmission mechanism in Japan has been cited as one of the main reasons why the quantitative easing of monetary policy undertaken by the Bank of Japan (BOJ) has been insufficient in achieving the objective of an early escape from deflation and the economic slump. The BOJ has quantitatively eased monetary policy, promising to provide as much money as the market needs, and as a result, short term interest rates have fallen to very low levels. However, the growth rate of bank lending particularly to small and medium-sized enterprises (SMEs), has been drawing a secular downtrend for years (Chart 1), thus leading to considerable debate over the effectiveness of the monetary policy. The factors underlying the malfunction of the monetary transmission channel lurk both in the financial and non- financial sectors. Of all the underlying factors, there is broad consensus that the "health" of the Japanese financial sector should be considered as the problem of most concern. The financial sector has played a central role in providing external finance to the non- financial sectors through financial intermediation, accumulating credit risks within the financial sector itself. Associated with the non-performing loan problem, the excess accumulation of credit risks in the banking sector lowers the financial intermediation ability. Thus, it impairs the smooth propagation of monetary policy through the credit channel. On the side of non- financial enterprises, SMEs as a driving force in the Japanese economy, in particular, have been struggling with their fundraising. Limited availability of reliable information on SMEs, in other words, the asymmetric information problem of SMEs is pivotal as is often mentioned. Furthermore, it is important to bear in mind that the shortage of collateral is an obstacle to credit availability for SMEs. SMEs with lower credit status seek alternative sources of funding that strengthen the effects of monetary easing. The BOJ announced its intention to purchase asset backed securities (ABS) whose underlying assets are closely related to SME economic activities. One important motivation for this policy arises from the idea that utilizing modern financial tools, i.e., securitization, can be a possible way to solve the overconcentration or excess accumulation of credit risks in the banking sector, albeit it would be a rare move for central banks to buy private debt. The outright purchase is expected to restore the monetary transmission mechanism by helping diversify credit risks in the financial sector among other economic agents including the BOJ. The other motivation of the new policy is to increase fundraising options for SMEs. For example, the BOJ will purchase ABS backed by accounts receivable. The use of accounts receivable as collateral is not a popular fundraising method for SMEs in Japan. SMEs can take advantage of the BOJ's policy to utilize quality assets which have not been effectively used as collateral in the past. SME external financial sources can be multi-tracked, thereby reducing their heavy reliance upon traditional financial intermediation. Thus, through the implementation of "traditional" monetary policy tools to purchase "untraditional" financial assets, the policy is expected to strengthen the monetary transmission mechanism. The spirit of this policy is to effectively improve SME access to financing through accelerating the development of ABS markets, without causing distortions in the ABS markets. The scheme is carefully designed to avoid any moral hazards and to contribute to the removal of obstacles to SME financing through enhancing financial disintermediation.

Tanemura, Tomoki, Yasunari Inamura, Shinichi Nishioka, Hideaki Hirata, and Tokiko Shimizu. 2004. “Liquidity in JGB Markets? Analysis on the Intraday Bid-Ask Spreads?” Bank of Japan Market Review 2004-E (1). Publisher's Version
Shimizu, Tokiko, and Hideaki Hirata. 2004. “SME financing in Japan and the BOJ's Action Plan.” APEC Finance and Development Program Proceedings of SME Financing in Asian Pacific Region.
Kim, Sunghyun Henry, and Ayhan M Kose. 2004. “Integration and Fluctuations.” Emerging Markets Finance and Trade 40 (6): 48-67. Publisher's Version Abstract

This paper analyzes the impact of global integration on the dynamics of economic growth and business cycles in the emerging economies of Middle East and North Africa (MENA) and Asia. In particular, the paper examines the evolution of structural characteristics, growth dynamics, and business cycle properties of these countries during the 1960-2000 period. Although both groups of countries became more open and were able to diversify their industrial structures and export bases over time, the MENA countries lagged behind the Asian economies in both trade integration and the extent of diversification of exports during the globalization period (1986-2000). Although economic growth slowed in both groups during the period of globalization, the extent of the slowdown was much sharper in the MENA countries. Moreover, business cycle fluctuations in the MENA countries were much more volatile than in the Asian economies. In addition, although both groups of countries witnessed a moderation in the amplitude of macroeconomic fluctuations during the globalization period, the decline in the volatility of cyclical fluctuations in the MENA countries was relatively small, partially because of the inability of these countries to utilize the benefits of global integration.

Economists have used various financial economic indicators to forecast economic activity. For example, the information contained in the term structure of interest rates has long been regarded as useful for predicting future economic activity. And recently, this topic has received renewed attention as a result of the increasing importance of bond markets behavior for monetary policy and real economic activity in developed economies. Estrella and Mishkin (1996a, b) have found that the yield spread the difference between long-term and short-term interest rates contains useful information for predicting recessions in the U.S. economy by employing the Probit type estimation. They have also found that the yield spread outperforms the stock prices and other leading economic indicators in predicting recessions over forecasting horizons longer than a quarter. In this article, we apply the Estrella-Mishkin analysis to the Japanese economy. The results are somewhat tentative, given the relatively short duration of the period of free interest rate movements, that is, the period since the late 1970s. Nonetheless we find that (1) The yield spread does predict Japanese recessions, based on the Probit model. (2) Other financial variables also predict recessions. The monetary aggregates predict recessions well, but they are also close to a coincident indicator. The stock price is a leading indicator of real economic activity, but is a noisy indicator. Among the three, the yield spread seems to be the best leading indicator of recessions. On the other hand, (3) The predictive power of the yield spread in the Japanese financial markets, however, is not so strong as that in the U. S. markets. For example, in simple OLS regressions of indicators of economic activity on the yield spread, the yield spread is insignificant at a quarterly frequency, though it is significant at a monthly frequency. We suspect that the result reflect the short duration of the sample period and that they may well change as more data become available in the future. In this sense, the results must be interpreted with caution.