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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 20, No. 1, pp.165-199
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2007
Received 13 Nov 2006 Revised 02 Feb 2007

Investment Specific Technological Changes in Japan

R. Anton Braun ; Etsuro Shioji
Professor, University of Tokyo, 7-3-1 Hongo, Bunkyo-ku 113-0033, Tokyo, Japan toni@e.u-tokyo.ac.jp
Associate Professor, Graduate School of Economics, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo, 186-8601, Japan shioji@econ.hit-u.ac.jp

JEL Classification: E10, E22, E32

Abstract

This paper studies the role of investment specific technological changes in economic fluctuations in Japan. Following Greenwood, Hercowitz, and Huffman (1998) and Fisher (2006), we model a consumption goods producing sector and an investment goods producing sector, and consider technological changes that are common to the two sectors as well as one that is specific to the latter sector. We evaluate each shock's role using two approaches. In the first approach, we extend the model of Hayashi and Prescott (2002) by incorporating investment specific technological changes. This model is calibrated to the Japanese economy. In the second approach, we estimate an SVAR model with sign restrictions (Uhlig 2005) in which the restrictions are derived from implications that are common to competing major dynamic general equilibrium models incorporating investment specific technology shocks. The first exercise suggests that investment specific technological improvements sustained the potential growth rate of the Japanese economy in its “lost decade.” The second exercise shows that investment specific technology shocks are at least as important as neutral technology shocks in Japan’s business cycles.

Keywords:

Investment specific technology, Neoclassical growth model, VAR with sign restrictions, Japanese economy

Acknowledgments

We thank participants of the 14th Seoul Journal of Economics International Symposium Sustainable Growth in East Asia, especially the discussants Young Sik Kim and Yongsung Chang as well as Hak K. Pyo for very valuable comments. Research for this paper started as a part of a project financed by the Japanese Ministry of Education’s grant-in-aid #12124202. The authors thank other members of the research group for helpful comments. Braun thanks the Kikawaka Foundation for financial assistance. Shioji thanks the Nikkei Foundation for financial assistance. Shioji also thanks valuable research assistance from Vu Tuan Khai and Hiroko Takeuchi.

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