Japanese business cycles in the world economy: A dynamic general equilibrium approach

This dissertation examines the dynamics of business cycles in Japan during the period 1960:1--2001:1. Studying this issue gives rise to relevant insights into Japan's prolonged slowdown in the 1990s and mapping these insights to policy options provides a forward-looking economic perspective. There have been numerous studies focusing on the sources of business cycles in the United States and European countries using closed and open economy dynamic general equilibrium models. However, only a few studies have recently examined business cycles in Japan utilizing closed economy dynamic general equilibrium models. Considering the important role played by increased international trade and financial flows in the global economy, this dissertation argues that understanding the sources of business cycles in Japan requires a rigorous examination of the sources of cyclical fluctuations in the context of open economy business cycle models.; The dissertation focuses on the role of external shocks and the importance of growing international trade and financial linkages in explaining business cycles in Japan using various open economy dynamic stochastic business cycle models. The first chapter of the dissertation provides a detailed examination of the features of business cycles in Japan and documents a set of stylized facts. The second chapter focuses on the role of shocks associated with the fluctuations in energy prices in explaining business cycles in Japan using a stochastic dynamic small open economy model. The results suggest that roughly 15 percent of business cycle variation in Japan is explained by the energy price shocks. The third chapter examines how business cycles are transmitted from other developed countries to Japan using a multi-country stochastic dynamics business cycle model. The model replicates the main features of international business cycles. It also shows that domestic productivity shocks play an important role in explaining Japanese business cycles. The last chapter provides a brief summary of the findings and discusses policy implications.