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Business Cycle Accounting for the Japanese Economy Using the Parameterized Expectations Algorithm

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  • INABA Masaru

Abstract

We propose an application of the parameterized expectations algorithm (PEA) to business cycle accounting (BCA). The PEA has an advantage in that it is simple and easier to understand and implement than the other non-linear solution methods for the dynamic stochastic general equilibrium model. Moreover, we apply BCA to the Japanese economy using the PEA which relaxes the perfect foresight assumption and show that the result is similar to the main result in the deterministic BCA by Kobayashi and Inaba (2006). The effects of the investment wedge are not a significant cause of the persistent recession during the 1990s. The output due to the efficiency wedge roughly replicates actual output, while the discrepancy widened during the 1990s. The labor wedge had a large depressing effect on output during 1989-2005. The efficiency wedge explains the recent economic recovery.

Suggested Citation

  • 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).
    • Handle: RePEc:eti:dpaper:07061
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    Cited by:

    1. Morita, Hiroshi, 2014. "External shocks and Japanese business cycles: Evidence from a sign-restricted VAR model," Japan and the World Economy, Elsevier, vol. 30(C), pages 59-74.
    2. HOSONO Kaoru, 2009. "Financial Crisis, Firm Dynamics and Aggregate Productivity in Japan," Discussion papers 09012, Research Institute of Economy, Trade and Industry (RIETI).
    3. Chakraborty, Suparna, 2009. "The boom and the bust of the Japanese economy: A quantitative look at the period 1980-2000," Japan and the World Economy, Elsevier, vol. 21(1), pages 116-131, January.

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