PREDICTION OF THE PREFECTURAL ECONOMY IN JAPAN USING A STOCHASTIC MODEL

Hiroshi Sakamoto ()
Additional contact information
Hiroshi Sakamoto: International Centre for the Study of East Asian Development (ICSEAD), JAPAN

Regional Science Inquiry, 2013, vol. V, issue 1, 13-24

Abstract: This study develops a simple forecasting model using Japanese prefectural data. The Markov chain, known as a stochastic model, corresponds to a first-order vector auto-regressive (VAR) model. If the transition probability matrix can be appropriately estimated, a forecasting model using the Markov chain can be constructed. This study introduces a methodology for estimating the transition probability matrix of the Markov chain using least-squares optimization. The model is used first to analyze economy-wide changes encompassing all Japanese prefectures up to 2020. Second, a shock emanating from one prefecture is inserted into the transition probability matrix to investigate its influence on the other prefectures. Finally, a Monte Carlo experiment is conducted to refine the model’s predicted outcomes. Although this study’s model is simple, we provide more sophisticated forecasting information for prefectural economies in Japan through the complicated extension.

Keywords: Prefectural economy; Japan; Stochastic model; Markov chain (search for similar items in EconPapers)
JEL-codes: C15 C53 C61 O53 R12 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.rsijournal.eu/ARTICLES/June_2013/1.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hrs:journl:v:v:y:2013:i:1:p:13-24

Access Statistics for this article

Regional Science Inquiry is currently edited by Dr Christos Ap. Ladias

More articles in Regional Science Inquiry from Hellenic Association of Regional Scientists
Bibliographic data for series maintained by Dimitrios K. Kouzas ().