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Accounting for Japanese Business Cycles: A Quest for Labor Wedges

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  • Keisuke Otsu

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Abstract

The Japanese business cycle from 1980-2007 portrays less contemporaneous correlation of labor with output than in the U.S. and also tends to lead output by one quarter. A canonical real business cycle model cannot account for these facts. This paper uses the business cycle accounting method a la Chari, Kehoe and McGrattan (2007) and shows that efficiency and labor market distortions are important in accounting for the quarterly business cycle fluctuation patterns in Japan. Fiscal and monetary variables such as labor income tax, money growth and interest rates cannot fully account for the distortions in the Japanese labor market.

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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 1106.

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Date of creation: Apr 2011
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Handle: RePEc:ukc:ukcedp:1106

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: business cycle accounting; japanese labor market;

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  1. Fumio Hayashi & Edward C. Prescott, 2000. "The 1990s in Japan: a lost decade," Working Papers 607, Federal Reserve Bank of Minneapolis.
  2. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," Papers 88-05, Rochester, Business - General.
  3. Anton Braun, R., 1994. "Tax disturbances and real economic activity in the postwar United States," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 441-462, June.
  4. Fumio Hayashi & Edward C. Prescott, 2002. "Data Appendix to The 1990s in Japan: A Lost Decade," Technical Appendices hayashi02, Review of Economic Dynamics.
  5. R. Anton Braun & Julen Esteban-Pretel & Toshihiro Okada & Nao Sudou, 2005. "A Comparison of the Japanese and U.S. Business Cycles," CIRJE F-Series CIRJE-F-392, CIRJE, Faculty of Economics, University of Tokyo.
  6. Keiichiro Kobayashi & Masaru Inaba, 2005. "Business Cycle Accounting for the Japanese Economy," Discussion papers 05023, Research Institute of Economy, Trade and Industry (RIETI).
  7. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  8. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers 625, Federal Reserve Bank of Minneapolis.
  9. Ellen R. McGrattan, 1991. "The macroeconomic effects of distortionary taxation," Discussion Paper / Institute for Empirical Macroeconomics 37, Federal Reserve Bank of Minneapolis.
  10. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," NBER Working Papers 3974, National Bureau of Economic Research, Inc.
  11. Lawrence J. Christiano & Joshua M. Davis, 2006. "Two flaws in business cycle accounting," Working Paper Series WP-06-10, Federal Reserve Bank of Chicago.
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Cited by:
  1. Nao Sudo, 2011. "Accounting for the Decline in the Velocity of Money in the Japanese Economy," IMES Discussion Paper Series 11-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
  2. Keisuke Otsu, 2012. "How well can business cycle accounting account for business cycles?," Economics Bulletin, AccessEcon, vol. 32(2), pages 1774-1784.

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