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The Japanese Lost Decade and Beyond: A Chain Reaction Theory Approach

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  • Agnese, Pablo

    (UIC Barcelona)

Abstract

The Japanese lost decade has become an intriguing puzzle for both economists and policy-makers alike, as the unemployment rate climbed to unprecedented levels and the growth rate of productivity decreased considerably. More recent times seem to present with a more optimistic outlook, but this is not yet the last word in the matter. In this paper we estimate two alternative multi-equation structural models descriptive of the Japanese labor market, that are then used to conduct dynamic simulations both for the lost decade period (1990-2002) and beyond (2002-2007). Our results point, primarily, to the damaging effects of the ever-increasing public debt as a major source of labor market inefficiencies. In addition, we find the fall in labor union power to have a significant easing effect on the unemployment rate, but also to be a major driver in the apparently eroding pattern of the labor income share in recent years.

Suggested Citation

  • Agnese, Pablo, 2011. "The Japanese Lost Decade and Beyond: A Chain Reaction Theory Approach," IZA Discussion Papers 5463, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp5463
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    References listed on IDEAS

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    1. Roed, Knut, 1996. "Unemployment Hysteresis--Macro Evidence from 16 OECD Countries," Empirical Economics, Springer, vol. 21(4), pages 589-600.
    2. Bahmani-Oskooee, Mohsen & Hegerty, Scott W. & Kutan, Ali M., 2008. "Do nominal devaluations lead to real devaluations? Evidence from 89 countries," International Review of Economics & Finance, Elsevier, vol. 17(4), pages 644-670, October.
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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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