Discussion Paper Series 2009-E-28

Accounting for Japanese Business Cycles: a Quest for Labor Wedges

Keisuke Otsu

A key feature of the Japanese business cycles over the 1980-2007 period is that the fluctuation of total hours worked leads the fluctuation of output. A canonical real business cycle model cannot account for this fact. This paper uses the business cycle accounting method introduced by Chari, Kehoe and McGrattan (2007) and shows that labor market distortions are important in accounting for the this feature of the Japanese labor supply fluctuation. I further discuss fundamental economic shocks that manifest themselves as labor wedges and assess their impacts on labor fluctuation.

Keywords: Business Cycle Accounting; Japanese Labor Market

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2009 Bank of Japan All Rights Reserved.

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