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

Muto, Ichiro and Kumano, Yusuke and Nakano, Akihiro (2013): What explains the recent fluctuations in Japan's output? A structural factor analysis of Japan's industrial production.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Industrial Production; Structural Factor Analysis; Lehman Shock; Great East Japan Earthquake; Supply Chain Network; Input-output Matrix
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

References

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