The Cyclical Behavior of Government Lending Institutions in Japan

Abstract

This study focuses on a neglected area of Japan's fiscal policy: the macroeconomic behavior of government lending institutions (GLI). The concept of a reaction function is applied to the lending policies of Japan's fiscal authorities. The policy instrument is the total loans and discounts of individual and aggregate GLI. Using a measure of the real GNP gap as the primary target variable, government lending policy was found to have served a macrostabilizing role in the post-1980 period. In the earlier period (1955-79) of relatively high output volatility, a neutral policy appears to have prevailed. (E44, E62, E32)