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Business cycle accounting for the Japanese economy

Author

Listed:
  • Keiichiro Kobayashi

    (Research division RIETI)

  • Masaru Inaba

Abstract

We conducted business cycle accounting (BCA) using the method developed by Chari, Kehoe, and McGrattan (2002a) on data from the 1980s--1990s in Japan and from the interwar period in Japan and the United States. The contribution of this paper is twofold. First, we find that labor wedges may have been a major contributor to the decade-long recession in the 1990s in Japan. We argue that the deterioration of the labor wedge may have been caused by sticky wages and monetary contraction, and it may have been prolonged by the continuation of asset-price declines through binding collateral constraints. Second, we performed an alternative BCA exercise using the capital wedge instead of the investment wedge to check the robustness of BCA implications for financial frictions. The accounting results with the capital wedge imply that financial frictions may have had a large depressive effect during the 1930s in the United States. This implication is the opposite of that from the original BCA findings.

Suggested Citation

  • Keiichiro Kobayashi & Masaru Inaba, 2006. "Business cycle accounting for the Japanese economy," 2006 Meeting Papers 313, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:313
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    References listed on IDEAS

    as
    1. Fumio Hayashi & Edward C. Prescott, 2004. "The 1990s in Japan: a lost decade," Chapters, in: Paolo Onofri (ed.), The Economics of an Ageing Population, chapter 2, Edward Elgar Publishing.
    2. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
    3. Kobayashi, Keiichiro & Inaba, Masaru, 2006. "Business cycle accounting for the Japanese economy," Japan and the World Economy, Elsevier, vol. 18(4), pages 418-440, December.
    4. Andolfatto, David, 2003. "Monetary Implications of the Hayashi-Prescott Hypothesis for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(4), pages 1-20, December.
    5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2003. "Accounting for the Great Depression," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 27(Spr), pages 2-8.
    6. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
    7. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Accounting for the Great Depression (technical appendix)," Working Papers 619, Federal Reserve Bank of Minneapolis.
    8. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1.
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    11. Suparna Chakraborty, 2004. "Accounting for the 'Lost Decade' in Japan," Macroeconomics 0408009, University Library of Munich, Germany.
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    More about this item

    Keywords

    Business cycle accounting; Japanese economy; capital wedge; Great Depression.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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