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Capital utilization in Japan's lost decade: A neoclassical interpretation

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  • Miyazawa, Kensuke

Abstract

This paper attempts to reconcile the controversy regarding Japan's total factor productivity during its slump in the 1990s by clarifying the role of capital utilization. Hayashi and Prescott (2002) emphasized that the decline in the exogenous total factor productivity growth rate was the main cause. However, some empirical studies have also pointed out that the fall in capital utilization rates accounted for a large part of the decline in the total factor productivity growth rate. In this study we incorporate variable capital utilization into a neoclassical growth model, calculate total factor productivity taking into account capital utilization, and simulate the aggregate output and capital-output ratio. We found that although our total factor productivity growth rate in the 1990s is consistent with empirical studies, our simulation can explain the observed data. This result indicates the importance of capital utilization rates as a source of propagation during Japan's depression.

Suggested Citation

  • Miyazawa, Kensuke, 2012. "Capital utilization in Japan's lost decade: A neoclassical interpretation," Japan and the World Economy, Elsevier, vol. 24(4), pages 246-253.
  • Handle: RePEc:eee:japwor:v:24:y:2012:i:4:p:246-253
    DOI: 10.1016/j.japwor.2012.07.002
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    References listed on IDEAS

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    1. Fumio Hayashi & Edward C. Prescott, 2004. "The 1990s in Japan: a lost decade," Chapters,in: The Economics of an Ageing Population, chapter 2 Edward Elgar Publishing.
    2. Miles S. Kimball & John G. Fernald & Susanto Basu, 2006. "Are Technology Improvements Contractionary?," American Economic Review, American Economic Association, vol. 96(5), pages 1418-1448, December.
    3. 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.
    4. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-1174, December.
    5. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-283, April.
    6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    7. T. Miyagawa & Y. Sakuragawa & M. Takizawa, 2006. "Productivity And Business Cycles In Japan: Evidence From Japanese Industry Data," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 161-186.
    8. R. Anton Braun & Yuichiro Waki, 2006. "Monetary Policy During Japan'S Lost Decade," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 324-344.
    9. Kawamoto, Takuji, 2005. "What Do the Purified Solow Residuals Tell Us about Japan's Lost Decade?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(1), pages 113-148, February.
    10. Meza Felipe & Quintin Erwan, 2007. "Factor Utilization and the Real Impact of Financial Crises," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-41, September.
    11. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
    12. Bils, Mark & Cho, Jang-Ok, 1994. "Cyclical factor utilization," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 319-354, April.
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    14. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Capital utilization; TFP; Japan's lost decade;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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