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Accounting for Japanese Business Cycles: a Quest for Labor Wedges

  • Keisuke Otsu

    (Faculty of Liberal Arts, Sophia University (E-mail:

A key feature of the Japanese business cycles over the 1980- 2007 period is that the fluctuation of total hours worked leads the fluctuation of output. A canonical real business cycle model cannot account for this fact. This paper uses the business cycle accounting method introduced by Chari, Kehoe and McGrattan (2007) and shows that labor market distortions are important in accounting for the this feature of the Japanese labor supply fluctuation. I further discuss fundamental economic shocks that manifest themselves as labor wedges and assess their impacts on labor fluctuation.

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Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 09-E-28.

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Date of creation: Nov 2009
Date of revision:
Handle: RePEc:ime:imedps:09-e-28
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  1. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 82(2), pages 346-53, May.
  2. Fumio Hayashi & Edward C. Prescott, 2002. "Data Appendix to The 1990s in Japan: A Lost Decade," Technical Appendices hayashi02, Review of Economic Dynamics.
  3. Lawrence J. Christiano & Joshua M. Davis, 2006. "Two flaws in business cycle accounting," Working Paper Series WP-06-10, Federal Reserve Bank of Chicago.
  4. V. V. Chari & Patrick Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," Levine's Bibliography 122247000000000560, UCLA Department of Economics.
  5. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-48, September.
  6. R. Anton Braun & Julen Esteban-Pretel & Toshihiro Okada & Nao Sudou, 2005. "A Comparison of the Japanese and U.S. Business Cycles," CIRJE F-Series CIRJE-F-392, CIRJE, Faculty of Economics, University of Tokyo.
  7. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  8. McGrattan, Ellen R., 1994. "The macroeconomic effects of distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 573-601, June.
  9. Keiichiro Kobayashi & Masaru Inaba, 2005. "Business Cycle Accounting for the Japanese Economy," Discussion papers 05023, Research Institute of Economy, Trade and Industry (RIETI).
  10. Fumio Hayashi & Edward C. Prescott, 2000. "The 1990s in Japan: a lost decade," Working Papers 607, Federal Reserve Bank of Minneapolis.
  11. Anton Braun, R., 1994. "Tax disturbances and real economic activity in the postwar United States," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 441-462, June.
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