An Empirical Study on the Relationship between Flow-of-Funds and the Real Economy : A General Equilibrium Approach to the Japanese Economy in the 1990s

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This research is an empirical attempt to analyze the mechanism of what brought about the long stagnancy of the Japanese economy in the 1990s from the general equilibrium standpoint. We investigated into the change in the flow-of-funds of the Japanese economy and how it had been propagated into the real economy. First, based on the firm-level micro data of Basis Survey of Small and Medium-sized Enterprises conducted by Small and Medium Enterprise Agency, we showed that small firms with weak relationship with banks tended to purchase intermediary goods from large firms and thus credit was given to small customers by large suppliers in the form of trade credit. Given the empirical findings obtained from the micro-data study above, we extended our analysis to examine the effects of balance sheet deteriorations of suppliers and purchasers as well as financial institutions on the trade of intermediary goods between large and small firms based on the input-output tables classified by firm size. We found that deterioration of the balance sheet conditions of financial institutions providing bank credit to suppliers affected the multipliers of small and large firms to a large extent.