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Distortions in Factor Markets and Structural Adjustments in the Economy

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  • Nakakuki, Masayuki

    (Institute for Monetary and Econ Studies, Bank of Japan)

  • Otani, Akira

    (Institute for Monetary and Econ Studies, Bank of Japan)

  • Shiratsuka, Shigenori

    (Institute for Monetary and Econ Studies, Bank of Japan)

Abstract

In this paper, we carry out qualitative and quantitative analyses of impacts of factor market distortions on Japan's economic stagnation in the 1990s, thereby showing that resolution of structural impediments is essential for the restoration of sustained economic growth. Distortions in factor markets lead the economy to exhibit inefficient resource allocations, resulting in an inward shift of the nations production possibility frontier and a decline in its attainable output. Our estimation results reveal that the deterioration of distortions in factor markets is attributable to 0.5 percent of the decline in GDP growth (-3.6 percent) after the bursting of the asset price bubble. This confirms that the exacerbation of structural impediments in factor markets is one of the major causes of the prolonged economic stagnation after the bursting of the asset price bubble. Moreover, given that autonomous resolution of factor market distortions through the market mechanism is hardly expected, it is important to take measures to achieve a more efficient allocation of productive resources. Without such measures, monetary and fiscal policies cannot return the economy to a sustainable growth path.

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Bibliographic Info

Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 22 (2004)
Issue (Month): 2 (May)
Pages: 71-99

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Handle: RePEc:ime:imemes:v:22:y:2004:i:2:p:71-99

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  1. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-77, December.
  2. Susanto Basu & John G. Fernald, 1997. "Aggregate productivity and aggregate technology," International Finance Discussion Papers 593, Board of Governors of the Federal Reserve System (U.S.).
  3. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
  4. Hirose, Yasuo & Kamada, Koichiro, 2003. "A New Technique for Simultaneous Estimation of Potential Output and the Phillips Curve," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 93-112, August.
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Cited by:
  1. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006. "Zombie Lending and Depressed Restructuring in Japan," NBER Working Papers 12129, National Bureau of Economic Research, Inc.
  2. Naohiko Baba & Shinichi Nishioka & Nobuyuki Oda & Masaaki Shirakawa & Kazuo Ueda & Hiroshi Ugai, 2005. "Japan's deflation, problems in the financial system and monetary policy," BIS Working Papers 188, Bank for International Settlements.
  3. Cizkowicz, Piotr & Rzonca, Andrzej, 2011. "Interest rates close to zero, post-crisis restructuring and natural interest rate," MPRA Paper 36989, University Library of Munich, Germany.
  4. Fuchi, Hitoshi & Muto, Ichiro & Ugai, Hiroshi, 2005. "A Historical Evaluation of Financial Accelerator Effects in Japan's Economy," MPRA Paper 4648, University Library of Munich, Germany.
  5. Koike, Ryoji, 2004. "Japan's Foreign Direct Investment and Structural Changes in Japanese and East Asian Trade," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 22(3), pages 145-182, October.

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