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Productivity Slowdown in Japan's Lost Decades: How Much of It Can Be Attributed to Damaged Balance Sheets? *
Author(s) -
Muto Ichiro,
Sudo Nao,
Yoneyama Shunichi
Publication year - 2023
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12517
Subject(s) - total factor productivity , economics , slowdown , balance sheet , productivity , solow residual , monetary economics , balance (ability) , financial crisis , economic slowdown , macroeconomics , econometrics , international economics , finance , growth accounting , medicine , physical medicine and rehabilitation , economic growth
After the global financial crisis, slowdowns of total factor productivity (TFP), often measured as the Solow residual, have been observed across major countries. This study offers an explanation for this by focusing on Japan's financial crises during the 1990s. We first incorporate credit constraints, for financial intermediaries (FIs) and firms, and input–output structure into the standard New Keynesian model, and show that the model delivers multiple channels through which damaged balance sheets reduce measured TFP. We then estimate the model using Japanese data, and show that adverse shocks to FIs' balance sheets played a substantial role in lowering measured TFP.