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What Do the Purified Solow Residuals Tell Us about Japan's Lost Decade?

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  • Kawamoto, Takuji

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

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    Abstract

    In the 1990s, measured productivity growth decelerated dramatically in Japan. However, the standard Solow residuals may reflect factors other than changes in the rate of technological progress. This paper attempts to construct a measure of "true" aggregate technical change for the Japanese economy over the years 1973-98, controlling for increasing returns, imperfect competition, cyclical utilization of capital and labor, and reallocation effects. We find little or no evidence of a decline in the pace of technological change during the 1990s. Both cyclical utilization and reallocations of inputs have played an important role in lowering measured productivity growth relative to true technology growth. Our results thus cast doubt on the explanation of Japans "lost decade" that attributes the prolonged slump to the observed productivity slowdown.

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    File URL: http://www.imes.boj.or.jp/research/papers/english/me23-1-3.pdf
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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): 23 (2005)
    Issue (Month): 1 (February)
    Pages: 113-148

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    Handle: RePEc:ime:imemes:v:23:y:2005:i:1:p:113-148

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    1. Beason, Richard & Weinstein, David E, 1996. "Growth, Economies of Scale, and Targeting in Japan (1955-1990)," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 286-95, May.
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    3. Hall, Robert E., 1987. "Productivity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 27(1), pages 421-444, January.
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    5. Kyoji Fukao & Tomohiko Inui & Hiroki Kawai & Tsutomu Miyagawa, 2004. "Sectoral Productivity and Economic Growth in Japan, 1970-98: An Empirical Analysis Based on the JIP Database," Hi-Stat Discussion Paper Series d03-19, Institute of Economic Research, Hitotsubashi University.
    6. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 2000. "The role of investment-specific technological change in the business cycle," European Economic Review, Elsevier, vol. 44(1), pages 91-115, January.
    7. Gauti B. Eggertsson & Michael Woodford, 2003. "Optimal Monetary Policy in a Liquidity Trap," NBER Working Papers 9968, National Bureau of Economic Research, Inc.
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    12. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
    13. Shapiro, Matthew D, 1993. "Cyclical Productivity and the Workweek of Capital," American Economic Review, American Economic Association, vol. 83(2), pages 229-33, May.
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    Cited by:
    1. Akiyoshi, Fumio & Kobayashi, Keiichiro, 2010. "Banking crisis and productivity of borrowing firms: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 22(3), pages 141-150, August.
    2. Tomoyuki Nakajima, 2003. "Asset Price Fluctuations in Japan: 1980-2000," Working Papers 2003-25, Brown University, Department of Economics.
    3. Nadenichek, Jon, 2007. "Consumer confidence and economic stagnation in Japan," Japan and the World Economy, Elsevier, vol. 19(3), pages 338-346, August.
    4. MORIKAWA Masayuki, 2008. "Demand Fluctuations and Productivity of Service Industries," Discussion papers 08030, Research Institute of Economy, Trade and Industry (RIETI).
    5. Yamada, Tomoaki, 2012. "Income risk, macroeconomic and demographic change, and economic inequality in Japan," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 63-84.
    6. Miyazawa, Kensuke, 2012. "Capital utilization in Japan's lost decade: A neoclassical interpretation," Japan and the World Economy, Elsevier, vol. 24(4), pages 246-253.

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