Do investment-specific technological changes matter for business fluctuations? Evidence from Japan

The observed decline in the relative price of investment goods to consumption goods in Japan suggests the existence of investment-specific technological (IST) changes. We examine whether IST changes are a major source of business fluctuations in Japan, by estimating a dynamic stochastic general equilibrium model with Bayesian methods. We show that IST changes are less important than neutral technological changes in explaining output fluctuations. We also demonstrate that investment fluctuations are mainly driven by shocks to investment adjustment costs. Such shocks represent variations of costs involved in changing investment spending, such as financial intermediation costs. We then find that the estimated series of the investment adjustment cost shock correlates strongly with the diffusion index of firms' financial position in the Tankan (Short-term Economic Survey of Enterprises in Japan). We thus argue that the large decline in investment growth in the early 1990s is due to an increase in investment adjustment costs stemming from firms' tight financial constraint after the collapse of Japan's asset price bubble

Do investment-specific technological changes matter for business fluctuations? Evidence from Japan

The observed decline in the relative price of investment goods to consumption goods in Japan suggests the existence of investment-specific technological (IST) changes. We examine whether IST changes are a major source of business fluctuations in Japan, by estimating a dynamic stochastic general equilibrium model with Bayesian methods. We show that IST changes are less important than neutral technological changes in explaining output fluctuations. We also demonstrate that investment fluctuations are mainly driven by shocks to investment adjustment costs. Such shocks represent variations of costs involved in changing investment spending, such as financial intermediation costs. We then find that the estimated series of the investment adjustment cost shock correlates strongly with the diffusion index of firms' financial position in the Tankan (Short-term Economic Survey of Enterprises in Japan). We thus argue that the large decline in investment growth in the early 1990s is due to an increase in investment adjustment costs stemming from firms' tight financial constraint after the collapse of Japan's asset price bubble.Business fluctuation; Investment-specific technology; Investment adjustment cost shock; Financial intermediation cost; Firms' financial constraint

Identifying News Shocks with Forecast Data

Recent studies attempt to quantify the empirical importance of news shocks (ie., anticipated future schocks) in business cycle fluctuations. This paper identifies news schocks in a dynamic stochastic general equilibrium model estimated with not only actual data but also forecast data. The estimation results show new empirical evidence that antecipated future technology shocks are the most important driving force of U.S. business cycles. The use of the forecast data makes the anticipated shocks play a much more important role in fitting model-implied expectations to this data, since such shocks have persistent effects on the expectaions and thereby help to replicate the observed persistence of the forecasts.

Indeterminacy and forecastability

Recent studies document the deteriorating performance of forecasting models during the Great Moderation. This conversely implies that forecastability is higher in the preceding era, when the economy was unexpectedly volatile. We offer an explanation for this phenomenon in the context of equilibrium indeterminacy in dynamic stochastic general equilibrium models. First, we analytically show that a model under indeterminacy exhibits richer dynamics that can improve forecastability. Then, using a prototypical New Keynesian model, we numerically demonstrate that indeterminacy due to passive monetary policy can yield superior forecastability as long as the degree of uncertainty about sunspot fluctuations is relatively small.Forecasting ; Mathematical models ; Monetary policy

A New Technique for Simultaneous Estimation of Potential Output and the Phillips Curve

A new technique is demonstrated for the simultaneous estimation of potential output and the Phillips curve. In this paper, we define potential output as the non-accelerating inflation level of output (NAILO). The NAILO is not a simple trend of actual output. Instead, it is the critical level of output such that, were actual output at this level, the inflation rate would be neither accelerating nor decelerating. Our application is the case of Japan, for which we estimate both the NAILO and the Phillips curve and investigate their properties. It is shown that during the 1980s and 1990s, the Japanese output gap, as measured using the NAILO, was negative on average, reflecting the global trend of disinflation. We also point out that this NAILO-based output gap has displayed a tendency to move in line with corporate sentiment and is thus a useful indicator of business conditions. However, being subject to re-estimation due to the revision of source data and the arrival of new data, the NAILO estimate is surrounded by uncertainty. This uncertainty needs to be kept in mind in real-time analysis, and the NAILO estimate should be interpreted with care, particularly in the process of policymaking.

Fast-Spectrum Fluoride Molten Salt Reactor (FFMSR) with Ultimately Reduced Radiotoxicity of Nuclear Wastes

A mixture of NaF-KF-UF4 eutectic and NaF-KF-TRUF3 eutectic containing heavy elements as much as 2.8 g/cc makes a fast-spectrum molten salt reactor based upon the U-Pu cycle available without a blanket. It does not object breeding but a stable operation without fissile makeup under practical contingencies. It is highly integrated with online dry chemical processes based on “selective oxide precipitation” to create a U-Pu cycle to provide as low as 0.01% leakage of TRU and nominated as the FFMSR. This certifies that the radiotoxicity of HLW for 1500 effective full power days (EFPD) operation can be equivalent to 405 tons of depleted uranium after 500 years cooling without Partition and Transmutation (P&T). A certain amount of U-TRU mixture recovered from LWR spent fuel is loaded after the initial criticality until U-Pu equilibrium but the fixed amount of 238U only thereafter. The TRU inventory in an FFMSR stays at an equilibrium perpetually. Accumulation of spent fuel of an LWR for 55 years should afford to start up the identical thermal capacity of FFMSR and to keep operation hypothetically until running out of 238U. Full deployment of the FFMSR should make the entire fuel cycle infrastructures needless except the HLW disposal site

Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach

We examine whether the news shocks, as explored in Beaudry and Portier (2004), can be a major source of aggregate fluctuations. For this purpose, we extend a dynamic stochastic general equilibrium model, a la Christiano, Eichenbaum, and Evans (2005), by allowing news shocks on the total factor productivity and estimate the model using Bayesian methods. Estimation results on the Japanese and U.S. economies show that (1) the news shocks play an important role in business cycles; (2) a news shock with a longer forecast horizon has larger effects on nominal variables; and (3) the overall effect of the total factor productivity on hours worked becomes ambiguous in the presence of news shocks.Demand for Money, Aggregation, Heterogeneity