Hirose, Yasuo and Kurozumi, Takushi (2011): Do investment-specific technological changes matter for business fluctuations? Evidence from Japan.
Download (343kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Do investment-specific technological changes matter for business fluctuations? Evidence from Japan|
|Keywords:||Business fluctuation; Investment-specific technology; Investment adjustment cost shock; Financial intermediation cost; Firms' financial constraint|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment; Capacity
|Depositing User:||Yasuo Hirose|
|Date Deposited:||22. Aug 2011 14:46|
|Last Modified:||12. Feb 2013 19:12|
Bernanke, B. S., M. Gertler and S. Gilchrist (1999) The Financial Accelerator in a Quantitative Business Cycle Framework. in J. B. Taylor and M. Woodford (eds.), Handbook of Macroeconomics, vol. 1C, Amsterdam: Elsevier Science, North-Holland, 1341--1393.
Braun, R. A. and E. Shioji (2007) Investment Specific Technological Changes in Japan. Seoul Journal of Economics 20, 165--199.
Brooks, S. and A. Gelman (1998) Some Issues in Monitoring Convergence of Iterative Simulations. in Proceedings of the Statistical Computing Section 1998, American Statistical Association.
Calvo, G. A. (1983) Staggered Prices in a Utility-Maximizing Framework. Journal of Monetary Economics 12, 383--398.
Canova, F., M. Finn and A. R. Pagan (1994) Evaluating a Real Business Cycle Model. in C. P. Hargreaves (ed.), Nonstationary Time Series Analysis and Cointegration, Oxford: Oxford University Press, 225--255.
Carlstrom, C. T. and T. S. Fuerst (1997) Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis. American Economic Review 87, 893--910.
Christiano, L. J., M. Eichenbaum and C. L. Evans (2005) Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy. Journal of Political Economy 113, 1--45.
Christiano, L. J. and I. Fujiwara (2006) The Bubble, Overinvestment, Reduction in Working Hours, and the Lost Decade. (in Japanese) Bank of Japan Working Papers Series 06-J-8.
Christiano, L. J., R. Motto and M. V. Rostagno (2010) Financial Factors in Economic Fluctuations. European Central Bank Working Paper Series 1192.
Edge, R. M., M. T. Kiley and J.-P. Laforte (2008) Natural Rate Measures in an Estimated DSGE Model of the U.S. Economy. Journal of Economic Dynamics and Control 32, 2512--2535.
Erceg, C. J., L. Guerrieri and C. Gust (2006) SIGMA: A New Open Economy Model for Policy Analysis. International Journal of Central Banking 2, 1--50.
Fisher, J. D. M. (2006) The Dynamic Effects of Neutral and Investment-Specific Technology Shocks. Journal of Political Economy 114, 413--451.
Fueki, T., I. Fukunaga, H. Ichiue and T. Shirota (2010) Measuring Potential Growth with an Estimated DSGE Model of Japan's Economy. Bank of Japan Working Papers Series 10-E-13.
Fujiwara, I., Y. Hirose and M. Shintani (2008) Can News be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach. IMES Discussion Paper Series 08-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
Gilchrist, S., A. Ortiz and E. Zakrajsek (2009) Credit Risk and the Macroeconomy: Evidence from an Estimated DSGE Model. Mimeo.
Greenwood, J., Z. Hercowitz and G. W. Huffman (1988) Investment, Capacity Utilization, and the Real Business Cycle. American Economic Review 78, 402--417.
Greenwood, J., Z. Hercowitz and P. Krusell (1997) Long-Run Implications of Investment-Specific Technological Change. American Economic Review 87, 342--362.
Greenwood, J., Z. Hercowitz and P. Krusell (2000) The Role of Investment-Specific Technological Change in the Business Cycle. European Economic Review 44, 91--115.
Hara, N., N. Hirakata, Y. Inomata, S. Ito, T. Kawamoto, T. Kurozumi, M. Minegishi and I. Takagawa (2006) The New Estimates of Output Gap and Potential Growth Rate. Bank of Japan Review 2006-E-3.
Hayashi, F. and E. C. Prescott (2002) The 1990s in Japan: A Lost Decade. Review of Economic Dynamics 5, 206--235.
Hirakata, N., N. Sudo and K. Ueda (2010) Do Banking Shocks Matter for the U.S. Economy? IMES Discussion Paper Series 10-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
Hirose, Y. (2008) Equilibrium Indeterminacy and Asset Price Fluctuation in Japan: A Bayesian Investigation. Journal of Money, Credit and Banking 40, 967--999.
Hirose, Y. and T. Kurozumi (2010) Do Investment-Specific Technological Changes Matter for Business Fluctuations? Evidence from Japan. Bank of Japan Working Papers Series 10-E-4.
Ichiue, H., T. Kurozumi and T. Sunakawa (2008) Inflation Dynamics and Labor Adjustments in Japan: A Bayesian DSGE Approach. Bank of Japan Working Papers Series 08-E-9.
Iiboshi, H., S. Nishiyama and T. Watanabe (2006) An Estimated Dynamic Stochastic General Equilibrium Model of the Japanese Economy: A Bayesian Analysis. Mimeo.
Ireland, P. and S. Schuh (2008) Productivity and U.S. Macroeconomic Performance: Interpreting the Past and Predicting the Future with a Two-Sector Real Business Cycle Model. Review of Economic Dynamics 11, 473--492.
Justiniano, A., G. E. Primiceri and A. Tambalotti (2010) Investment Shocks and Business Cycles. Journal of Monetary Economics 57, 132--145.
Justiniano, A., G. E. Primiceri and A. Tambalotti (2011) Investment Shocks and the Relative Price of Investment. Review of Economic Dynamics 14, 102--121.
Kaihatsu, S. and T. Kurozumi (2010) Sources of Business Fluctuations: Financial or Technology Shocks?. Bank of Japan Working Papers Series 10-E-12.
Levin, A. T., A. Onatski, J. C. Williams and N. Williams (2006) Monetary Policy under Uncertainty in Micro-founded Macroeconometric Models. in M. Gertler and K. Rogoff (eds.), NBER Macroeconomics Annual 2005, Cambridge MA: MIT Press, 229--287.
Meh, C. A. and K. Moran (2010) The Role of Bank Capital in the Propagation of Shocks. Journal of Economic Dynamics and Control 34, 555--576.
Smets, F. and R. Wouters (2003) An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area. Journal of the European Economic Association 1, 1123--1175.
Smets, F. and R. Wouters (2007) Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach. American Economic Review 97, 586--606.
Sugo, T. and K. Ueda (2008) Estimating a Dynamic Stochastic General Equilibrium Model for Japan. Journal of the Japanese and International Economies 22, 476--502.
Taylor, J. B. (1993) Discretion Versus Policy Rules in Practice. Carnegie-Rochester Conference Series on Public Policy 39, 195--214.
Uhlig, H. (2005) What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure. Journal of Monetary Economics 52, 381--419.