 What causes business cycles? Analysis of the Japanese industrial production dataHiroshi Iyetomi, Yasuhiro Nakayama, Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, Yuichi Ikeda and Wataru Souma Journal of the Japanese and International Economies, 2011, vol. 25, issue 3, 246-272 Abstract: We explore what causes business cycles by analyzing the Japanese industrial production data. The methods used are spectral analysis and factor analysis. Using the random matrix theory, we show that two largest eigenvalues are significant. Taking advantage of the information revealed by disaggregated data, we identify the first dominant factor as the aggregate demand, and the second factor as inventory adjustment. They cannot be reasonably interpreted as technological shocks. We also demonstrate that in terms of two dominant factors, shipments lead production by four months. Furthermore, out-of-sample test demonstrates that the model holds up even under the 2008-2009 recession. Because a fall of output during 2008-2009 was caused by an exogenous drop in exports, it provides another justification for identifying the first dominant factor as the aggregate demand. All the findings suggest that the major cause of business cycles is real demand shocks. Date: 2011 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:25:y:2011:i:3:p:246-272 Access Statistics for this article Journal of the Japanese and International Economies is currently edited by Takeo Hoshi More articles in Journal of the Japanese and International Economies from Elsevier |
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