What explains the recent fluctuations in Japan's output? A structural factor analysis of Japan's industrial production
AbstractSince the mid-2000s, Japan's industrial production (IP) has been characterized by increasing volatility. To examine the background to this, we apply the structural factor analysis developed by Foerster, Sarte, and Watson (2011) and decompose variations in Japan's IP into aggregate and sectoral shocks taking input-output relationships between sectors into account. We find that aggregate shocks explain most of the fluctuations in Japan's IP and are highly correlated with variations in overseas economic growth, especially since the early 2000s. However, we find a large increase in the relative importance of sectoral shocks when focusing on the more recent increase in the volatility of IP. Specifically, our analysis suggests that the intersectoral spillovers brought about by the disruptions of supply chain network in the wake of Great East Japan Earthquake and the declines of domestic production (or production capacity) in some sectors as a result of a deterioration in global competitiveness or the shift to overseas production have contributed to the recent fluctuations of Japan's IP.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 48615.
Date of creation: Jul 2013
Date of revision:
Industrial Production; Structural Factor Analysis; Lehman Shock; Great East Japan Earthquake; Supply Chain Network; Input-output Matrix;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
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- Iyetomi, Hiroshi & Nakayama, Yasuhiro & Yoshikawa, Hiroshi & Aoyama, Hideaki & Fujiwara, Yoshi & Ikeda, Yuichi & Souma, Wataru, 2011. "What causes business cycles? Analysis of the Japanese industrial production data," Journal of the Japanese and International Economies, Elsevier, vol. 25(3), pages 246-272, September.
- Xavier Gabaix, 2011.
"The Granular Origins of Aggregate Fluctuations,"
Econometric Society, vol. 79(3), pages 733-772, 05.
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- Kimura, Takeshi & Shiotani, Kyosuke, 2009. "Stabilized business cycles with increased output volatility at high frequencies," Journal of the Japanese and International Economies, Elsevier, vol. 23(1), pages 1-19, March.
- Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2011. "Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 1 - 38.
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