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Payment Uncertainty And The Productivity Slowdown

  • KOBAYASHI, KEIICHIRO

This paper proposes a simple theory to explain the productivity slowdown observed in Japan during the 1990s. Under a forbearance policy by the government toward nonperforming loans, one keeping insolvent firms afloat, other economic agents become exposed to a higher risk of not being paid by their customers (payment uncertainty). It is shown that the payment uncertainty, working through a competitive market, causes an endogenous decline in the number of firms that are involved in the production of one good. Resulting disruptions of the division of labor among firms lower macroeconomic productivity. The performance of the model is compared with that of the Japanese economy in the 1990s.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 11 (2007)
Issue (Month): 02 (April)
Pages: 231-248

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Handle: RePEc:cup:macdyn:v:11:y:2007:i:02:p:231-248_06
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  1. Lee E. Ohanian, 2002. "Why did productivity fall so much during the Great Depression?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
  2. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Accounting for the Great Depression (technical appendix)," Working Papers 619, Federal Reserve Bank of Minneapolis.
  3. Kobayashi, Keiichiro & Inaba, Masaru, 2005. "Debt disorganization in Japan," Japan and the World Economy, Elsevier, vol. 17(2), pages 151-169, April.
  4. Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Accounting for the Great Depression," American Economic Review, American Economic Association, vol. 92(2), pages 22-27, May.
  5. Blanchard, Olivier & Kremer, Michael, 1997. "Disorganization," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1091-1126, November.
  6. Lamont, Owen, 1995. "Corporate-Debt Overhang and Macroeconomic Expectations," American Economic Review, American Economic Association, vol. 85(5), pages 1106-17, December.
  7. Dale W. Jorgenson & Kazuyuki Motohashi, 2003. "Economic Growth of Japan and the United States in the Information Age," Discussion papers 03015, Research Institute of Economy, Trade and Industry (RIETI).
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