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What explains the recent fluctuations in Japan's output? A structural factor analysis of Japan's industrial production

Author

Listed:
  • Muto, Ichiro
  • Kumano, Yusuke
  • Nakano, Akihiro

Abstract

Since the mid-2000s, Japan's industrial production (IP) has been characterized by increasing volatility. To examine the background to this, we apply the structural factor analysis developed by Foerster, Sarte, and Watson (2011) and decompose variations in Japan's IP into aggregate and sectoral shocks taking input-output relationships between sectors into account. We find that aggregate shocks explain most of the fluctuations in Japan's IP and are highly correlated with variations in overseas economic growth, especially since the early 2000s. However, we find a large increase in the relative importance of sectoral shocks when focusing on the more recent increase in the volatility of IP. Specifically, our analysis suggests that the intersectoral spillovers brought about by the disruptions of supply chain network in the wake of Great East Japan Earthquake and the declines of domestic production (or production capacity) in some sectors as a result of a deterioration in global competitiveness or the shift to overseas production have contributed to the recent fluctuations of Japan's IP.

Suggested Citation

  • Muto, Ichiro & Kumano, Yusuke & Nakano, Akihiro, 2013. "What explains the recent fluctuations in Japan's output? A structural factor analysis of Japan's industrial production," MPRA Paper 48615, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:48615
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    References listed on IDEAS

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    1. Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2011. "Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 1-38.
    2. Naohito Abe, 2004. "The Multi-Sector Business Cycle Model and Aggregate Shocks: An Empirical Analysis," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 101-118.
    3. Yoshikawa, Hiroshi, 1995. "Macroeconomics and the Japanese Economy," OUP Catalogue, Oxford University Press, number 9780198233268.
    4. TOKUI Joji & ARAI Nobuyuki & KAWASAKI Kazuyasu & MIYAGAWA Tsutomu & FUKAO Kyoji & ARAI Sonoe & EDAMURA Kazuma & KODAMA Naomi & NOGUCHI Naohiro, 2012. "The Economic Impact of the Great East Japan Earthquake: Comparison with other disasters, supply chain disruptions, and electric power supply constraint (Japanese)," Policy Discussion Papers (Japanese) 12004, Research Institute of Economy, Trade and Industry (RIETI).
    5. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, May.
    6. Konomi Tonogi & Katsuaki Ochiai & Kazumi Asako, 2010. "Business Cycles in Japan and in Asian Countries : Tests of Comovements between CI and Trade Statistics," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(2), pages 237-260, March.
    7. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    8. repec:wsi:ceprxx:v:01:y:2012:i:01:n:s1793969012500070 is not listed on IDEAS
    9. Mitsuhiro Osada & Takuji Kawamoto, 2007. "Stabilization in the Volatility of Output: A Decline in Cross-industry Comovements," Bank of Japan Review Series 07-E-6, Bank of Japan.
    10. Kimura, Takeshi & Shiotani, Kyosuke, 2009. "Stabilized business cycles with increased output volatility at high frequencies," Journal of the Japanese and International Economies, Elsevier, vol. 23(1), pages 1-19, March.
    11. Iyetomi, Hiroshi & Nakayama, Yasuhiro & Yoshikawa, Hiroshi & Aoyama, Hideaki & Fujiwara, Yoshi & Ikeda, Yuichi & Souma, Wataru, 2011. "What causes business cycles? Analysis of the Japanese industrial production data," Journal of the Japanese and International Economies, Elsevier, vol. 25(3), pages 246-272, September.
    12. Muto, Ichiro & Sudo, Nao & Yoneyama, Shunichi, 2013. "Productivity Slowdown in Japan’s Lost Decades: How Much of It is Attributed to Financial Factors?," Dynare Working Papers 28, CEPREMAP.
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    Cited by:

    1. Iiboshi, Hirokuni & Matsumae, Tatsuyoshi & Namba, Ryoichi & Nishiyama, Shin-Ichi, 2015. "Estimating a DSGE model for Japan in a data-rich environment," Journal of the Japanese and International Economies, Elsevier, vol. 36(C), pages 25-55.
    2. Takaoka, Sumiko, 2018. "Convenience yield on government bonds and unconventional monetary policy in Japanese corporate bond spreads," MPRA Paper 86418, University Library of Munich, Germany.

    More about this item

    Keywords

    Industrial Production; Structural Factor Analysis; Lehman Shock; Great East Japan Earthquake; Supply Chain Network; Input-output Matrix;

    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
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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