This paper investigates the role of technology shocks as a propagation mechanism for business cycles using the new technique of business cycle accounting (BCA) and some new evidence from Japan. BCA technique enables us to model the economy as a standard growth model, but extends it to allow multiple propagation channels (referred to as wedges). Applying it to Japan during the period 1980 to 2000, I find that though technology shocks play an important role in propagating market frictions, they are by no means enough to account for the observed economic fluctuations. Investment wedges play a major role, something that standard RBC models fail to recognize and consequently tends to overemphasize the role of technology shocks.
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Paper provided by EconWPA in its series Macroeconomics with number
0508002.
Length: 29 pages Date of creation: 02 Aug 2005 Date of revision: Handle: RePEc:wpa:wuwpma:0508002
Note: Type of Document - pdf; pages: 29. This paper was previously circulated as 'Accounting for the Lost Decade in Japan' Contact details of provider: Web page: http://129.3.20.41
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