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An Exploration of the Japanese Slowdown during the 1990s

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  • Diego A. Comin

Abstract

Why did the Japanese slowdown of the 90s last so long if none of the shocks that hit the Japanese economy had a comparable persistence? In this paper, I use the Comin and Gertler (2006) model of medium term fluctuations to explore whether their endogenous technology mechanisms can amplify and propagate the wage markup fluctuations observed in Japan over the early 90s to drive a Japanese productivity slowdown. The model can reproduce the observed decline, relative to trend of R&D expenditures and the slowdown in the diffusion of new technologies. This slowdown in the development and adoption of new technologies constitutes a powerful propagation mechanism. As a result, the model does a good job in reproducing the evolution of output, consumption, investment, TFP and hours worked in Japan during the "lost decade", specially up to 1998. During the last two years of the decade, the propagation mechanisms in the model seem to run out of steam, while the Japanese economy continued to deteriorate.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14509.

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Date of creation: Nov 2008
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Publication status: published as Comin, Diego A. "An Exploration of the Japanese Slowdown during the 1990s." In Japan's Bubble, Deflation, and Long-term Stagnation, edited by Koichi Hamada, Anil Kashyap, and David Weinstein. MIT Press, 2011.
Handle: RePEc:nbr:nberwo:14509

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  1. Jordi Galí & Mark Gertler & J. David López-Salido, 2005. "Markups, gaps and the welfare costs of business fluctuations," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 836, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Gadi Barlevy, 2004. "On the Timing of Innovation in Stochastic Schumpeterian Growth Models," NBER Working Papers 10741, National Bureau of Economic Research, Inc.
  3. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers, DELTA (Ecole normale supérieure) 90-12, DELTA (Ecole normale supérieure).
  4. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  5. Robert E. Hall, 1997. "Macroeconomic Fluctuations and the Allocation of Time," NBER Working Papers 5933, National Bureau of Economic Research, Inc.
  6. Comin, D. & Gertler, M., 2003. "Medium Term Business Cycles," Working Papers, C.V. Starr Center for Applied Economics, New York University 03-05, C.V. Starr Center for Applied Economics, New York University.
  7. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 93-10, Federal Reserve Bank of San Francisco.
  8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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Cited by:
  1. Fabio Canova & Tobias Menz, 2009. "Japan's lost decade: Does money have a role?," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 1240, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Muellbauer, John & Murata, Keiko, 2009. "Consumption, Land Prices and the Monetary Transmission Mechanism in Japan," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7269, C.E.P.R. Discussion Papers.

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