The Effects of "Bubble" Economy and Financial System : Theory and Practice

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The object is to consider financial markets with uncertainty and imperfect information and to analyze the behavior of financial institutions, allocation of funds and macroeconomic movements in such economies.1. Financial System and the Theory of Information. I analyzed several topics related to monetary and financial economies with imperfect information, for examle, capital market and finacial intermediaries, theoretically, empirically and historically. (1) Main bank system, which is a feature of Japanese financial system, is a device of solving informational problems in financial markets. But imperfect information gives Main bank monopolistic position so that banks compete excessively for monopolistic rents. (2) Since banks face liquidity risk, bankruns and financial panics may occur if depositors cannot distinguish good banks from bad ones. They may destablize financial system. (3) I made it clear that the Bank Panic in 1927 was caused by moral hazard in bank management.2. Bank Capital, Loan and Macroeconomic Fluctuation. I show that banks' loan is strongly related to their capital and liability and this relationship may destablize the economy.