The purpose of this paper is to make clear whether the bank loan market in Japan is in equilibrium or not. There have been three papers on the issue, Hamada et al. [7], Furukawa [6] and Kamae [15]. They are contradicted with each other so that the definite conclusion has not yet been reached. Hamada et al. [8] explains that the difference in conclusion comes from the difference in observation period. The present paper re-examines their estimation to show that the explanation is not correct. The re-examination indicates that their supposed supply functions have multicollinearity, causing the contradiction.
In addition, those papers are found to have following weak points:
(a) They say that excess supply periods were longer than excess demand periods in 1960's and early 70's. However, the opposite view is commonly accepted.
(b) Whether the market is in equilibrium or not is judged in those three papers by the sign condition of estimated parameters. But this method fails to give a definite answer in many cases.
The present paper suggests more appropriate way of analysis as follows:
(A) Using three indices, an adequate sample separation can be found consistent with the popular view.
(B) Chow Test [2] is applied to judge whether the market is in equilibrium or not. This method enables us to judge in any case and to assess the degree of disequilibrium quantitatively.
With these modifications, the present paper concludes that the Japanese bank loan market is in disequilibrium whichever adjustment it has, the effective interest rate or the nominal interest rate.
Futhermore, the excess demand for the bank loan and the equilibrium interest rate are estimated quantitatively, describing the market condition fairly well.
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