Do investment-specific technological changes matter for business fluctuations? Evidence from Japan

Yasuo Hirose and Takushi Kurozumi

MPRA Paper from University Library of Munich, Germany

Abstract: The observed decline in the relative price of investment goods to consumption goods in Japan suggests the existence of investment-specific technological (IST) changes. We examine whether IST changes are a major source of business fluctuations in Japan, by estimating a dynamic stochastic general equilibrium model with Bayesian methods. We show that IST changes are less important than neutral technological changes in explaining output fluctuations. We also demonstrate that investment fluctuations are mainly driven by shocks to investment adjustment costs. Such shocks represent variations of costs involved in changing investment spending, such as financial intermediation costs. We then find that the estimated series of the investment adjustment cost shock correlates strongly with the diffusion index of firms' financial position in the Tankan (Short-term Economic Survey of Enterprises in Japan). We thus argue that the large decline in investment growth in the early 1990s is due to an increase in investment adjustment costs stemming from firms' tight financial constraint after the collapse of Japan's asset price bubble.

Keywords: Business fluctuation; Investment-specific technology; Investment adjustment cost shock; Financial intermediation cost; Firms' financial constraint (search for similar items in EconPapers)
JEL-codes: E22 E31 E32 (search for similar items in EconPapers)
Date: 2011-03-07
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: DO INVESTMENT-SPECIFIC TECHNOLOGICAL CHANGES MATTER FOR BUSINESS FLUCTUATIONS? EVIDENCE FROM JAPAN (2012)
Working Paper: Do Investment-Specific Technological Changes Matter for Business Fluctuations? Evidence from Japan (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:32944

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