Study Group on Changes in Financial and Industrial Structures

2009 - 2010

(1) Research project on financial and industrial networks

• This project focuses on inter-firm as well as bank-firm networks, empirically examines their development over time, and evaluates their impact on economic activities including firm performance. We employ a unique firm-level database that identifies inter-firm and bank-firm networks for analysis. Current research interest of the project members is on the changes in these networks incurred by the recent economic downturn with a focus on: the effect of government interventions in the credit market on bank-firm relationships, the efficiency of the decision making process of financial institutions, and the impact of credit scoring loans which have been introduced by major financial institutions.

(2) Research project on price and wage dynamics

• The inflation rate in Japan was close to zero even during the bubble period in the late 1980s but has remained below zero since the latter half of the 1990s. This clearly suggests that the nature of the inflation process has changed in a manner that has made high inflation less likely than in the 1960s and 70s. The purpose of this project is to study the causes and implications of such a change in the inflation process. The key idea is that a decline in the inflation rate at the macro level should be closely related to changes in firms' microeconomic behavior. Based on this understanding, we will employ high frequency scanner data to investigate changes in firms' price setting behavior, and then look into its implications for the Phillips curve relationship. This year we will focus on the analysis of deflation over the last ten years using micro price data.

2008

(1) Study Group on Financial and Industrial Networks

1. Cost-benefit of dealing with multiple banks, and creditworthiness-testing capabilities of financial institutions
   1) Inter-bank bargaining structures in new loan agreements will be analyzed to determine the implications of dealing with multiple banks.
   2) Processes culminating in lending decisions will be classified to determine behavioral differences among financial institutions.
   3) Performance of borrowers will be analyzed against banks' determinations of creditworthiness based on information other than tangible information.
2. Role of inter-firm credit as a substitute for bank borrowing
   1) The extension of inter-firm credit between firms being able to freely procure funds and firms facing severe restrictions in borrowing will be examined.
   2) Inter-firm credit is said to be acting as a substitute for bank borrowing. However, the real price of inter-firm credit is difficult to determine from the outside. Determinative factors that come into play in choosing between inter-firm credit and bank borrowing will be examined.
3. The relation between inter-firm transaction networks and firm behavior
   1) The role of transaction networks in the exit of firms will be analyzed.
   2) The impact of demand uncertainty on supply chains and sales networks in manufacturing industries will be analyzed.
   3) Structures of inter-firm transaction networks will be analyzed using the Earth Simulator.

(2) Study Group on Price and Wage Dynamics

In this project, we will undertake detailed micro-level analysis of the price-setting behavior of firms. Using this as a starting point, we will attempt a new approach to macro-level price dynamics. The following analyses will be undertaken during the current fiscal year.

1. Inter-store price differentials will be analyzed using home scanner data (data generated by households using scanners to record purchases). Particular attention will be paid to determining the relation between rates of price increases and price differentials.
2. The relation between product innovation and business cycles will be analyzed using home scanner data and store scanner data (POS data).
3. Price changes in online and off-line markets will be compared for digital home electronic products.
4. Analysis of wage stickiness will be continued.

2007

(1) Study Group on Financial and Industrial Networks
Japan's financial networks (financial-transaction and capital-transaction relations between firms and financial institutions) and industrial networks (commercial-transaction and capital-transaction relations among firms) underwent major changes as the economy emerged from a prolonged period of stagnation followed by a mild paced recovery. The purpose of this project is to empirically analyze this process of transformation based on financial data from major corporations, small and medium-sized enterprises and financial institutions, and transaction-related data from firms and financial institutions. The findings will be used to identify the structures of financial and industrial networks that will be conducive to Japan's achievement of stable growth in the future. In addition, appropriate policies and systems for the realization of this objective will be examined.

(2) Study Group on Price and Wage Dynamics
The relation between the rate of inflation and business conditions (Phillips curve) has become unstable since the 1980s. Specifically, during the bubble years of the late 1980s, prices remained stable notwithstanding overheated economic conditions. On the other hand, when the economy rapidly lost steam after the start of the 1990s, this did not result in a major decline in prices. The destabilization of the Phillips curve relationship is not unique to Japan and has also been observed in the U.S. and Europe. The aim of this project is to gain a better understanding of this phenomenon and to gain insights that will be useful in policy management. The most important feature of this project lies in its use of microdata. Past studies on price levels generally used the consumer price index and other aggregated data. However, there are clear limits to research based on aggregated data. In this project, the price-setting behavior of firms will be analyzed in detail on the micro level. This will serve as a point of departure for explaining the destabilization of the Phillips curve from a macro perspective.

July 10, 2007 - March 31, 2011