What explains the recent fluctuations in Japan's output? A structural factor analysis of Japan's industrial production

Ichiro Muto, Yusuke Kumano and Akihiro Nakano

MPRA Paper from University Library of Munich, Germany

Abstract: Since the mid-2000s, Japan's industrial production (IP) has been characterized by increasing volatility. To examine the background to this, we apply the structural factor analysis developed by Foerster, Sarte, and Watson (2011) and decompose variations in Japan's IP into aggregate and sectoral shocks taking input-output relationships between sectors into account. We find that aggregate shocks explain most of the fluctuations in Japan's IP and are highly correlated with variations in overseas economic growth, especially since the early 2000s. However, we find a large increase in the relative importance of sectoral shocks when focusing on the more recent increase in the volatility of IP. Specifically, our analysis suggests that the intersectoral spillovers brought about by the disruptions of supply chain network in the wake of Great East Japan Earthquake and the declines of domestic production (or production capacity) in some sectors as a result of a deterioration in global competitiveness or the shift to overseas production have contributed to the recent fluctuations of Japan's IP.

Keywords: Industrial Production; Structural Factor Analysis; Lehman Shock; Great East Japan Earthquake; Supply Chain Network; Input-output Matrix (search for similar items in EconPapers)
JEL-codes: C32 E23 E32 (search for similar items in EconPapers)
Date: 2013-07
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Related works:
Journal Article: What explains the recent fluctuations in Japan’s output? A structural factor analysis of Japan’s industrial production (2014)
Working Paper: What explains the recent fluctuations in Japan's output? A structural factor analysis of Japan's industrial production (2013)
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