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An Exploration of the Japanese Slowdown during the 1990s

  • Diego A. Comin

Why did the Japanese slowdown of the 90s last so long if none of the shocks that hit the Japanese economy had a comparable persistence? In this paper, I use the Comin and Gertler (2006) model of medium term fluctuations to explore whether their endogenous technology mechanisms can amplify and propagate the wage markup fluctuations observed in Japan over the early 90s to drive a Japanese productivity slowdown. The model can reproduce the observed decline, relative to trend of R&D expenditures and the slowdown in the diffusion of new technologies. This slowdown in the development and adoption of new technologies constitutes a powerful propagation mechanism. As a result, the model does a good job in reproducing the evolution of output, consumption, investment, TFP and hours worked in Japan during the "lost decade", specially up to 1998. During the last two years of the decade, the propagation mechanisms in the model seem to run out of steam, while the Japanese economy continued to deteriorate.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14509.

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Date of creation: Nov 2008
Date of revision:
Publication status: published as Comin, Diego A. "An Exploration of the Japanese Slowdown during the 1990s." In Japan's Bubble, Deflation, and Long-term Stagnation, edited by Koichi Hamada, Anil Kashyap, and David Weinstein. MIT Press, 2011.
Handle: RePEc:nbr:nberwo:14509
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  2. Gadi Barlevy, 2004. "On the Timing of Innovation in Stochastic Schumpeterian Growth Models," NBER Working Papers 10741, National Bureau of Economic Research, Inc.
  3. Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2002. "Markups, Gaps, and the Welfare Costs of Business Fluctuations," NBER Working Papers 8850, National Bureau of Economic Research, Inc.
  4. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S223-50, January.
  5. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, vol. 96(3), pages 523-551, June.
  6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  7. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  8. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
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