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Equilibrium Indeterminacy and Asset Price Fluctuation in Japan: A Bayesian Investigation
Author(s) -
HIROSE YASUO
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00143.x
Subject(s) - economics , sunspot , indeterminacy (philosophy) , volatility (finance) , asset (computer security) , econometrics , bayesian probability , financial market , finance , physics , mathematics , computer science , statistics , computer security , quantum mechanics , magnetic field
This paper investigates sources of asset price fluctuation in Japan using an estimated financial accelerator model. For explicit treatment of expectational beliefs characterized by sunspots, the model is analyzed over the parameter space where the equilibrium can be indeterminate. We show that indeterminacy arises if the financial accelerator effect is sufficiently large. According to our Bayesian estimation results, Japan's economy was affected by sunspot shocks; however, the contribution of the sunspots to asset price volatility was low. Rather, net worth and cost shocks drove the asset price fluctuation. We find, however, that the sunspots substantially affected capital investment.