The Center for Pacific Basin Studies (CPBS) promotes cooperation among central banks in the Pacific Basin and provides insight into and analysis of economic policy issues affecting the region.
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Pacific Basin Notes
What’s Up with Inflation Expectations in Japan?
| May 20, 2024
Both actual inflation and inflation expectations increased recently in Japan after decades of being undesirably low. An estimate based on nominal and real Japanese bond yields adjusted for liquidity and other risk premiums confirms that investors’ long-term inflation expectations have also increased. However, projections indicate that further increases are less likely and that long-term expected inflation in Japan is likely to remain anchored below the Bank of Japan’s 2% inflation target.
Working Papers
The Crowding-In Effects of Local Government Debt in China
Xiaoming Li, Zheng Liu, Yuchao Peng, and Zhiwei Xu
We study how changes in the composition of Chinese local government debt influenced bank risk taking, credit allocation, and local productivity. Using confidential loan-level data and a difference-in-difference identification approach, we show that a debt-to-bond swap program for local governments implemented in 2015 significantly increased bank risk taking through a risk-weighting channel under Basel III capital regulations. The debt swap program converted bank holdings of municipal corporate debt to local government bonds, reducing banks’ risk-weighted assets. Banks responded by lowering credit spreads on loans to privately owned firms (POEs) relative to state-owned enterprises (SOEs), with significantly larger reductions in POE credit spreads in provinces with more outstanding government debt. Furthermore, the credit reallocation toward more productive private firms—a crowding in effect of the debt swap—significantly raised local productivity.
Conferences
2024 Pacific Basin Research – CALL FOR PAPERS
May 15, 2024
Federal Reserve Bank of San Francisco | San Francisco, CA
2023 Asia Economic Policy Conference: Global Linkages in a Post-Pandemic World
November 16 – November 17, 2023
Federal Reserve Bank of San Francisco | San Francisco, CA