ESRI Discussion Paper Series No.324
Construction and Analysis of a Basic Macro-economic and Earthquake Disaster Model with a Supply Chain Framework and Constraints in Finance Lending Capacity

Motohiro Sato
Professor, Graduate School of Economics
School of International and Public Policy, Hitotsubashi University
Kazumasa Oguro
Professor, Faculty of Economics, Hosei University

Abstract

To perform an analysis on the interaction between an earthquake disaster and economic growth and fiscal policy, we build a basic macro-economic model that incorporates a complex supply chain framework.In particular, 1) Modelling the multi-layered production process (supply chain) that separates intermediate goods and final products, and 2) Reflecting the constraints in finance (credit) lending capacity to business enterprises. With regard to the latter, the loan amount is set at the constant rate of intermediate companies’ retained earnings (profit) in a simplified financial accelerator model. 1) Short-term effect from post-disaster disruption in the supply chain (a decrease in productivity of intermediate goods in the model), 2) Short-term to medium-term effect from lowered lending capacity by financial institutions, and 3) Medium-to long-term effect associated with rising interest rates accompanying the accumulation of public debt.

  • Keywords: public debt, earthquake disaster, economic growth, fiscal policy, supply chain, credit restriction
  • JEL Classification:D40, G21, L10, H60, R30, Q54
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