What caused Japan’s Great Stagnation in the 1990s? Evidence from an estimated DSGE model

Despite the widespread belief that Japan’s “Great Stagnation” in the 1990s is due to the financial dysfunction after the collapse of asset price bubbles, Hayashi and Prescott (2002) argue that its main cause is a slowdown in total factor productivity growth, using a calibrated neoclassical growth model. The present paper aims to fill this gap by estimating a New Keynesian dynamic stochastic general equilibrium model augmented with a financial accelerator mechanism and associated financial shocks. Our estimation results show that even in the presence of the financial shocks an adverse neutral technology shock mainly induced the Great Stagnation and that the rate of neutral technological change is strongly correlated with all enterprises’ financial position in the Tankan. Based on these findings, the paper argues that the Great Stagnation was caused by an adverse neutral technology shock that is likely to represent a tightening of firms’ financing, which induced reduction of R&D investment and misallocation of resources as indicated in previous literature.     

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

By applying the structural factor analysis developed by Foerster et al. (2011), we decompose the fluctuations of Japan’s industrial production (IP) into sectoral shocks and aggregate shocks, taking input–output relationships between sectors into account. Our results show that, except for the global financial crisis period, sectoral shocks explain, on an average, nearly half of the quarterly variations in Japan’s IP. Although the relative importance of sectoral shocks declined during the global financial crisis period, it increased again in the recent post-crisis period and, at this time, it contributes to the increased volatility of Japan’s IP. Specifically, our analysis suggests that the intersectoral spillovers brought about by disruptions of supply chain networks in the wake of the Great East Japan Earthquake, the declines in domestic production (or production capacity) in some sectors, as a result of a deterioration in global competitiveness, and a shift to overseas production have contributed to the recent increase in fluctuations of Japan’s IP.     

Absorption capacity of Russia’s forests and carbon dioxide emissions of fuel and energy systems

Carbon dioxide emissions from fuel combustion in the fuel and energy systems (FES) and production industries are estimated on the basis of an analysis of the long-term forecast of the development of the former. The carbon sequestration by forest and nonforest biomes is calculated. Based on the global balance of carbon fluxes, a long-term national carbon balance is drawn up. As follows from this balance, the carbon sequestration during the 21st century is even larger than emissions in FES development scenarios, which do not include any special restrictions on CO₂ emissions. Thus, a considerable portion of foreign emissions is absorbed. This fact should be taken into account when developing national strategies for socioeconomic development.     

Why is inequality higher among the old? Evidence from China

This paper studies income inequality in old age and its development over the life cycle. We show that income is more unequally distributed in old age than in working age. We combine the regression-based inequality decomposition method and the three-step mediating effect test to analyze the transmission of income inequality from initial socioeconomic differences to income inequality in old age. Our study is based on a panel of over 4000 old households from the China Health and Nutrition Survey during 1991–2015. We find that the urban-rural gap and educational inequality are the primary causes of old-age income inequality. The effect of the urban-rural gap is partially mediated by educational inequality. Inequality accumulates with age and is reinforced in old age by the fragmented Chinese public pension system.     

How is the Asian economy recovering from COVID-19? Evidence from the emissions of air pollutants

This study examines how economic and social activities in Asia were affected by the COVID-19 pandemic, using the emissions of various air pollutants as representative measures of those activities. Our review of emissions data suggests that the amount of air pollutants emitted decreased in most subnational regions from 2019 to 2020. We also determined that economic and social activities have restarted in some regions in many countries. Moreover, we conduct regression analyses to identify the types of regions that restarted earlier. Regional characteristics are distinguished by employing a remotely sensed land cover dataset and OpenStreetMap. Results reveal that in the case of the Association of Southeast Asian Nations (ASEAN) forerunners, economic and social activities in cropland, industrial estates, accommodations, restaurants, education, and public services have not yet returned to previous levels.     

Japan’s Lost decade: Does money have a role?

We study the contribution of the stock of money to the macroeconomic outcomes of the 1990s in Japan using a small-scale structural model. Likelihood-based estimates of the parameters are provided and time stabilities of the structural relationships analyzed. Real balances are statistically important for output and inflation fluctuations and their role has changed over time. Models which give money no role give a distorted representation of the sources of cyclical fluctuations. The severe stagnation and the long deflation are driven by different causes.     

Why is Productivity so Dispersed?

Many papers have documented wide variations in productivityeven in narrowly defined industries. Some have argued that thisprimarily reflects measurement problems due, for example, tocomparing across different products. Others argue that thisreflects persistent differences in performance due, for example,to management. This paper looks at productivity differencesnot within an industry but within a firm. We use data on productivityof different branches within lines of business of a major UK-basedwholesaler. Using these productivity data for comparisons is,we argue, more likely to compare like with like than comparingbetween firms. We document sustained differences in productivityeven between branches within the same line of business. We alsodiscuss the extent to which they are correlated with differencesin management and find that such differences ‘account’for around 40 per cent of the difference in productivity. Footnotes ¹ E-mail addresses: r.griffith{at}ifs.org.uk; j.e.haskel{at}qmul.ac.uk;a.neely{at}cranfield.ac.uk     

Does energy substitution affect carbon dioxide emissions – Income relationship?

Considerable discussion has taken place during the last decade regarding the role of economic growth in determining environmental quality. Using data from 30 OECD countries for the period 1960–2003 and the nonparametric method of generalized additive models, which enables us to use flexible functional forms, this paper examines the environmental Kuznets curve hypothesis for carbon dioxide (CO₂). We find that the reduction of coal share in energy use has a significant effect on CO₂. Our results imply that economic growth is not sufficient to decrease CO₂ emissions.     

Why is Chinese provincial output diverging?

In a recent paper Pedroni and Yao (2006) present strong evidence suggesting that Chinese provincial per-capita output is diverging, a result that goes against the Chinese government’s goal of a balanced wealth-creation across provinces. This paper provides an in-depth analysis of the reasoning behind this finding. Our main result is that the divergence does exist, even when new data and more advanced methods of analysis are used. We also find that it has both an idiosyncratic and a common component. Hence, the increased per-capita output inequalities observed at the provincial level is due to both province-specific disparities and to disparities between groups of provinces.     

Why does scholastic achievement differ across prefectures in Japan?

Using prefecture-level data on scholastic achievement tests in Japan, we found that parental income and education level positively affect student achievement. The effect of income on achievement is stronger for the high-scoring prefectures than for the low-scoring prefectures. The presence of grandparents also has a strong positive effect on student achievement. While the cross term between the percentage of absentees and the quantity of teachers is important in identifying the positive effects of teacher quantity, the effects of this quantity on elementary school achievement is nonlinear. We confirm the importance of teacher quality in determining junior high school achievement.     

What can be learned from China’s success?

Since 1978, China has experienced the most rapid economic growth of any country in world history, and the most rapid growth in living standards of any major economy. Following the latest international financial crisis, China outperformed any other major economy – from the second quarter of 2007 to the second quarter of 2014, China’s economy grew by 78% and the USA by 8%. In a single generation, China has gone from a ‘low income economy’ to the verge of achieving ‘high income’ status by World Bank criteria. Achieving this would double the population living in ‘high income’ economies globally. This extremely rapid development is sometimes explained in terms of unique ‘Chinese characteristics’, but research over the last 30 years suggests it is rooted in universal economic processes. While the combination of global forces producing economic growth is unique in China and produces unique ‘Chinese characteristics’, they can operate throughout the world economy. If other developing economies could achieve the scale of China’s economic success, global problems of poverty and its consequences would be solved. China’s policy response to the international financial crisis was far more effective than that of other major economies. This paper examines the chief strategic lessons to be drawn from China’s success.     

Japan’s GDP estimates: a critical review

The depressed state of the Japanese economy, especially in the late 1990s, makes the GDP gap of practical interest. Surprisingly, the official estimates of the GDP gap assert that it was no less than −4% in 1998. This seems to be too optimistic a view. Dissatisfied, Niwa 2000, Shishido 2000 presented strikingly different estimates for the GDP gap, according to which the gap was as large as −35% at 1998. Why such a large difference? This paper reviews how they arrived at such different results from the same set of basic data and the same production function approach. We show that, in the final analysis, the difference is in how to treat the technology input in the production function. The optimistic view changes the rate of technical change so that the potential growth path never deviates away from the actual growth path. By contrast, the pessimistic view keeps the rate of technical change constant so that the potential growth path can deviate away from the actual growth path. Hence, the GDP gap in the late 1990s is kept small in the optimistic estimate and very large in the pessimistic estimate. Each obtains what it wants from its own assumption. The true GDP gap lies between these two extremes.     

Are China's trade interests overestimated? Evidence from firms’ importing behavior and pollution emissions

Importing is an important driving force for a country's economic growth. While importing promotes the expansion of economic scale, does it also lead the increase of pollution emissions in production? In this paper, we establish a micro theoretical model to analyze the impacts of importing on firms’ environmental performance, and then use the data of China's manufacturing firms for empirical tests. We show that the importing of intermediate goods or capital goods will lead to the increase of firms’ production scale, and thereby increasing their total emissions, which suggests that China's environment will be deteriorated by importing. On the other hand, importing also has some positive environmental effects that firms will increase their abatement investment after importing intermediate goods or capital goods, thus firms’ emission intensity can be effectively reduced. Altogether, this paper provides important evidence on the impacts of importing on pollution emissions at product-level. We suggest that when analyzing China's interests in trade, the environmental effects of trade should be taken into consideration, otherwise China's gains from trade will be overestimated. This paper also has important implications that while developing the economy through international trade, the government should strengthen environmental protection and advocate green trade.     

Secrecy of Bank of Japan’s Yen intervention: Evidence of efficacy from intra-daily data

This paper examines the intraday effectiveness of the Bank of Japan (BOJ)’s foreign exchange interventions over the period May 13, 1991–March 16, 2004. The existing literature has generally failed to provide a comprehensive study on the effects of the BOJ’s interventions, and particularly, the efficacy of public and secret operations. By dividing a 24-h trading day into three horizons, we show that the intraday evidence on the effects of official interventions documented in prior studies primarily came from publicly known interventions. In the case of secret interventions, although there were no clear impacts on the first moment of exchange rate returns, we found significant second moment responses. Specifically, covert operations were able to reduce the Yen/USD return volatility during both Tokyo and subsequent overnight market hours. Furthermore, our extended model on secret interventions reveals that when the BOJ completely concealed its transactions, undetected interventions were shown to be most effective in both reversing undesired trends and reducing excess return volatilities. On the other hand, those interventions that were rumoured were not as effective. Finally, the interventions conducted during the periods of ‘oral interventions’ were in general more effective in moving the exchange rate in the desired direction.     

Rebalancing China＇s Economic Growth： Some Insights from Japan＇s Experience

One of the greatest challenges China faces is reshaping its heavily investment-driven mode of economic growth.By investigating how the rebalancing of Japan’s economic growth mode was realized in the 1970s,we indicate that it is essential in rebalancing to correct the distortions in factor cost(labor cost and capital cost) in a harmonious way.In addition,we refer to Japan’s experience to indicate that rebalancing of domestic growth does not necessarily lead to external rebalancing.     

Exchange rate sensitivity of Japan’s bilateral trade flows

The traditional way of assessing the impact of currency depreciation on the trade balance has been to estimate the elasticity of trade volume to relative prices. To this end, most previous studies used aggregate trade data. To shy away from problems associated with using aggregate data, recent studies have relied on bilateral trade data. Since import and export price data is not available on bilateral level, this study proposes an alternative way of assessing the impact of currency depreciation on bilateral trade flows. The models are applied between Japan and her nine largest trading partners using recent advances in time-series modeling.     

Crisis or transformation? Japan viewed from Hungary*

This paper challenges the view that Japan has been in crisis in the past decade. After citing some basic contradictory facts, the author first summarizes his arguments for the prevailing crisis mood by grouping them into ‘superficial’, ‘middle‐of‐the‐scale’ and ‘profound’ reasons. Then, in order to better prove his point that one should speak about the necessary transformation of the Japanese economy and society, rather than about the crisis, he gives a wider than usual coverage of the main areas of transformation.     

What Does “Privatization” Do for Efficiency? Evidence from Argentina’s and Brazil’s Railways

Railway restructuring and privatization have now become a mainstream policy option in many developing countries. This paper provides the first analysis of the efficiency payoffs of railway reform for two developing countries, Argentina and Brazil. We track down the evolution of the performance of the private operators in both countries since reform, compare with the pre-reform performance when possible, distinguishing between the output and input sources of efficiency changes. This is done by computing the total factor productivity of each business unit since the regulators started collecting enough data.