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)
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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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Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.
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Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
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