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Accounting for Japanese Business Cycles: A Quest for Labor Wedges

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  • Keisuke Otsu

    (School of Economics, University of Kent (E-mail: K.Otsu@kent.ac.uk))

Abstract

The Japanese business cycle from 1980 to 2007 portrays a less contemporaneous correlation of labor with output than in the United States, and in addition labor tends to lead output by one quarter. A canonical real business cycle model cannot account for these facts. This paper uses the business cycle accounting method following Chari, Kehoe, and McGrattan (2007) and shows that efficiency and labor market distortions are important in accounting for the quarterly business cycle fluctuation patterns in Japan. Fiscal and monetary variables such as labor income tax, money growth, and interest rates cannot fully account for the distortions in the Japanese labor market.

Suggested Citation

  • Keisuke Otsu, 2011. "Accounting for Japanese Business Cycles: A Quest for Labor Wedges," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 29, pages 143-170, November.
    • Handle: RePEc:ime:imemes:v:29:y:2011:p:143-170
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    References listed on IDEAS

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    Cited by:

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    2. Inaba, Masaru & Nutahara, Kengo & Shirai, Daichi, 2022. "What drives fluctuations of labor wedge and business cycles? Evidence from Japan," Journal of Macroeconomics, Elsevier, vol. 72(C).
    3. Ichiro Muto & Nao Sudo & Shunichi Yoneyama, "undated". "Productivity Slowdown in Japan's Lost Decades: How Much of It Can Be Attributed to Damaged Balance Sheets?," Bank of Japan Working Paper Series 16-E-3, Bank of Japan.
    4. Kosuke Aoki & Nao Sudo, 2012. "Asset Portfolio Choice of Banks and Inflation Dynamics," Bank of Japan Working Paper Series 12-E-5, Bank of Japan.
    5. Keiichiro Kobayashi & Daichi Shirai, 2017. "Debt-Ridden Borrowers and Economic Slowdown," CIGS Working Paper Series 17-002E, The Canon Institute for Global Studies.
    6. Shirai, Daichi, 2016. "Persistence and Amplification of Financial Frictions," MPRA Paper 72187, University Library of Munich, Germany.
    7. Keiichiro Kobayashi & Daichi Shirai, 2012. "Debt-Ridden Borrowers and Productivity Slowdown," CIGS Working Paper Series 14-005E, The Canon Institute for Global Studies.
    8. Keisuke Otsu, 2012. "How well can business cycle accounting account for business cycles?," Economics Bulletin, AccessEcon, vol. 32(2), pages 1774-1784.
    9. Kosuke Aoki & Nao Sudo, 2013. "Bank’s regulation, asset portfolio choice of banks, and macroeconomic dynamics," CARF F-Series CARF-F-323, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    10. Yue ZHAO, 2013. "Role of Financial and Productivity Shocks in the US and Japan: A Two-Country Economy," KIER Working Papers 881, Kyoto University, Institute of Economic Research.
    11. Nao Sudo, 2011. "Accounting for the Decline in the Velocity of Money in the Japanese Economy," IMES Discussion Paper Series 11-E-16, Institute for Monetary and Economic Studies, Bank of Japan.

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    More about this item

    Keywords

    Business cycle accounting; Japanese labor market;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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