We present a structural estimation of regionally heterogeneous demand elasticity and the degree of competition in Japanese local loan markets under prolonged monetary easing. Our estimates show that lending competition intensifies in markets where banks hold more slack liquidity caused by monetary easing, and where loan demand is less elastic against lowering interest rates due to a rapidly aging population. We also find evidence for “search-for-yield”, i.e., banks in more competitive markets are driven to extend riskier loans.
|Journal||Journal of The Japanese and International Economies|
|Publication status||Published - 2020 Jun|
ASJC Scopus subject areas
- Economics and Econometrics
- Political Science and International Relations