ERI Discussion Paper Series No.65
Japan's Extended Business Downturn: How Did It Happen?
-Analyses by the EPA World Economic Model Simulation

July 1996
Kenichi Kawasaki
(Economic Research Institute, Economic Planning Agency)
Masahiko Tsutsumi
(Economic Research Institute, Economic Planning Agency)

(Abstract)

The purpose of this paper is to quantify the effects of such measures and to clarify the factors that generated recent weal economic developments. Those will be analyzed by the simulations of the fifth version of the EPA World Economic Model. As the results entirely depends on the model variables and properties, reality in description of economic developments by model simulations is also discussed.

In chapter 2, the error analysis, which analyzes the reasons of deviations between actual data and derived figures from the model, is conducted. The main results are listed below. One, the weak economic activity would be largely attributed to stagnant private plants and equipment investment. Two, the stable unemployment rate is partly due to counter-cyclical behavior in the labor supply. Three, although the exchange rate appreciates further compared with economic fundamentals, its pass through into domestic price development is even less than before. Four, increasing cash demand may suggest a change in liquidity preference. Five, buoyant import of goods would be acknowledged.

In chapter 3, the role of policy measures is reviewed. Both fiscal and financial policies played important roles and their contributions were significant. However, they were not enough to offset the strong downward pressure of business cycle. Moreover, changes in Japanese economic structure have altered the transmission mechanisms of such policy measures. Income effects through wages and price formation are probably important.

Chanter 4 quantifies the negative effect of the asset price decline. The burst of the bubble lowered the GDP about 1 percent from the baseline in 1994. Moreover, the marginal 'run? implying the change in cash/deposits ratio, is also simulated.


Structure of the whole text

  1. Abstract別ウィンドウで開きます。(PDF-Format 148 KB)
  2. page1
    1. INTRODUCTION AND SUMMARY
  3. page3
    2. TRENDS IN POST-SAMPLE PERIOD
    1. page3
      2.1 Overview of Recent Developments
    2. page6
      2.2 Error Analysis
  4. page12
    3. THE ROLE OF POLICY MEASURES
    1. page12
      3.1 Assumptions
    2. page13
      3.2 Outcomes
    3. page15
      3.3 Possibilitties of Alternative Scenario
  5. page19
    4. FINANCIAL PROBLEMS AND THEIR IMPLICATION TO THE JAPANESE ECONOMY
    1. page19
      4.1 Collapse of Asset Price Bibbles
    2. page21
      4.2 The Risk of "Run"
    3. page23
      4.3 Effects on the World Economy
  6. page25
    5. CONCLUDING REMARKS
  7. page26
    6. REFERENCES
  8. page27
    Charts and Tables
    1. [1]別ウィンドウで開きます。(PDF-Format 1.0 MB) [2]別ウィンドウで開きます。(PDF-Format 105 KB)
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