Our congratulations to Isabelle Roland on the award of a BA/Leverhulme Small Research Grant
Isabelle Roland has been awarded a British Academy Small Research Grant.
The project will investigate the aggregate consequences of credit misallocation through the historical lens of Japan's "Lost Decade" and will examine the impact of forbearance on aggregate economic performance in Japan.
Forbearance is a practice whereby banks accommodate bad borrowers (so-called zombies) instead of terminating their loans, with negative consequences for aggregate productivity. Concerns over forbearance arose in several European countries following the financial crisis and the ensuing productivity slowdown.
Japan provides the perfect setting to examine this topic; first, there are many similarities between the European experience and Japan’s “Lost Decade”, secondarily, access to a rich dataset enables one to fill a gap in the literature.
The literature has focussed on firm-level regressions, showing for example that zombies depress the employment growth of healthy firms, but currently lacks an assessment of the aggregate impact of forbearance on economic performance, such as economy-wide employment, productivity, and investment.
The projects novel theory-driven empirical approach enables such a quantitative assessment.