During the 1980's, theories were developed to explain the striking correlation between real exchange rates and foreign direct investment (FDI). However, this relationship broke down for Japanese FDI in the 1990's, as the real exchange rate appreciated while FDI plummeted. We propose the relative...

The Japanese banking crisis provides a natural experiment to test whether a loan supply shock can affect real economic activity. Because the shock was external to U.S. credit markets, yet connected through the Japanese bank penetration of U.S. markets, this event allows us to identify an...

We examine the misallocation of credit in Japan associated with the perverse incentives faced by banks to provide additional credit to the weakest firms. Firms are more likely to receive additional bank credit if they are in poor financial condition, because troubled Japanese banks have an...

The size of Japanese bank lending operations in the United States enables the authors to use U.S. banking data to investigate the extent to which the sharp decline in Japanese stock prices was transmitted to the United States via U.S. branches of Japanese parent banks, as well as to identify a...