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Business cycle accounting for the Japanese economy

Keiichiro Kobayashi and Masaru Inaba

No 313, 2006 Meeting Papers from Society for Economic Dynamics

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.

Keywords: Business cycle accounting; Japanese economy; capital wedge; Great Depression. (search for similar items in EconPapers)
JEL-codes: E32 E37 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-his and nep-mac
Date: 2006-12-03
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http://www.rieti.go.jp/jp/publications/dp/05e023.pdf main text (application/pdf)
http://repec.org/sed2006/up.18601.1139806638.pdf (application/pdf)

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Journal Article: Business cycle accounting for the Japanese economy (2006) Downloads
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