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The boom and the bust of the Japanese economy: A quantitative look at the period 1980-2000

  • Chakraborty, Suparna

In this paper we quantitatively investigate the boom and the bust of the Japanese economy during 1980-2000 using the business cycle accounting technique. This method helps us identify the distortion margins called "wedges" that played a significant role in accounting for the output fluctuations. Applying our model to Japan, we find that efficiency and investment wedges can almost wholly account for output increases of the 1980s. Labor wedges by themselves would have caused a recession beginning in late 1980s but was overwhelmed by the positive impact of efficiency and investment wedges. In the 1990s, efficiency, labor and investment wedges all contributed to the recession. We next extend the literature by conducting robustness tests to investigate the sensitivity of BCA results to small modifications in methodology.

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Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 21 (2009)
Issue (Month): 1 (January)
Pages: 116-131

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Handle: RePEc:eee:japwor:v:21:y:2009:i:1:p:116-131
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505557

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  1. Robert Dekle & Kenneth Kletzer, 2003. "The Japanese Banking Crisis and Economic Growth: Theoretical and Empirical Implications of Deposit Guarantees and Weak Financial Regulation," CIRJE F-Series CIRJE-F-225, CIRJE, Faculty of Economics, University of Tokyo.
  2. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
  3. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05.
  4. Kenneth Kasa, 1998. "Borrowing constraints and asset market dynamics: evidence from the Pacific Basin," Economic Review, Federal Reserve Bank of San Francisco, pages 17-28.
  5. Keiichiro Kobayashi & Masaru Inaba, 2005. "Business Cycle Accounting for the Japanese Economy," Discussion papers 05023, Research Institute of Economy, Trade and Industry (RIETI).
  6. INABA Masaru, 2007. "Business Cycle Accounting for the Japanese Economy Using the Parameterized Expectations Algorithm," Discussion papers 07061, Research Institute of Economy, Trade and Industry (RIETI).
  7. Lawrence J. Christiano & Joshua M. Davis, 2006. "Two Flaws In Business Cycle Accounting," NBER Working Papers 12647, National Bureau of Economic Research, Inc.
  8. Takeo Hoshi & Anil K Kashyap, 2004. "Solutions to the Japanese Banking Crisis: What might work and what definitely will fail," Hi-Stat Discussion Paper Series d04-35, Institute of Economic Research, Hitotsubashi University.
  9. Casey B. Mulligan, 2002. "A Dual Method of Empirically Evaluating Dynamic Competitive Equilibrium Models with Market Distortions, Applied to the Great Depression & World War II," NBER Working Papers 8775, National Bureau of Economic Research, Inc.
  10. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  11. Fumio Hayashi & Edward C. Prescott, 2002. "The 1990s in Japan: A Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 206-235, January.
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