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Payment Uncertainty and the Productivity Slowdown

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  • Keiichiro Kobayashi

Abstract

This paper proposes a simple model that possibly explains 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 the market mechanism, 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 relevance of this model to Japan's lost decade and other depression episodes, such as the Great Depression in the United States, is discussed.

Suggested Citation

  • Keiichiro Kobayashi, 2004. "Payment Uncertainty and the Productivity Slowdown," Discussion papers 04029, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:04029
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    File URL: https://www.rieti.go.jp/jp/publications/dp/04e029.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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).
    3. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1091-1126.
    4. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2003. "Accounting for the Great Depression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-8.
    5. Lee E. Ohanian, 2002. "Why did productivity fall so much during the Great Depression?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
    6. Lamont, Owen, 1995. "Corporate-Debt Overhang and Macroeconomic Expectations," American Economic Review, American Economic Association, vol. 85(5), pages 1106-1117, December.
    7. Kobayashi, Keiichiro & Inaba, Masaru, 2005. "Debt disorganization in Japan," Japan and the World Economy, Elsevier, vol. 17(2), pages 151-169, April.
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    Cited by:

    1. Agnese, Pablo & Sala, Hector, 2009. "The fading 1990s in Japan: Driving forces behind the unemployment upsurge," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 428-439, June.
    2. Piotr Cizkowicz & Andrzej Rzonca & Andrzej Toroj, 2015. "In search for appropriate lower bound.Zero lower bound vs. positive lower bound under discretion and commitment," NBP Working Papers 215, Narodowy Bank Polski, Economic Research Department.
    3. Agnese, Pablo, 2009. "Japan and her dealings with offshoring: An empirical analysis with aggregate data," IESE Research Papers D/793, IESE Business School.
    4. Keiichiro Kobayashi, 2006. "Payment uncertainty, the division of labor, and productivity declines in great depressions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 715-741, October.
    5. repec:wsi:serxxx:v:62:y:2017:i:01:n:s0217590817400045 is not listed on IDEAS

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