| This dissertation is comprised of three essays in monetary economics motivated by the lost decade of Japan, a long stagnation of the Japanese economy in the 90s.;The first essay (Chapter 2) provides useful tools in characterizing value functions of a certain class of dynamic optimization problem, which are widely applicable to analyzing economic agent's decision making. I apply the tools developed in the essay to characterize the, optimal monetary policy when nominal interest rate is bounded by zero or near liquidity traps. I obtain three predictions, namely; that the optimal monetary policy near liquidity traps will be (i) more expansionary, (ii) more aggressive than the Taylor rule and (iii) asymmetric. Those predictions arc: empirically consistent with Japanese data in mid-90s.;The second essay (Chapter 3) develops a dynamic general equilibrium model in which the interaction of corporate demand for liquidity and macroeconomic fluctuation can he analyzed. I extended a capital market model with asymmetric information introduced in Holmstrom and Tirole (1998) to an infinite horizon environment. My model is capable of replicating several empirical facts of business cycles, which have remained unexplained by preceding DGE studies, namely, deficiencies of the RBC model and other agency cost models.;The third essay (Chapter 4) explores empirical facts of the recent macroeconomic fluctuation of the Japanese economy, extending the model developed in Chapter 3. First, I show some evidence that the Japanese capital market is imperfect, which means that the economy can at most achieve the second best allocation of capital/credit. Based on the finding; I detect that re-allocation of wealth stifled economic growth in the early 90s. Further, I test the prediction of the Holmstrom and Tirole's (1998) model to conclude that the risk sharing in short-term lending market was less effective in the 90 than in the 80s, which implies the violation of the second best allocation. |
