• The Great Moderation in the Japanese Economy
  Jun-Hyung KoKoichi Murase

  Abstract

  This paper investigates the contribution of technology and nontechnology shocks to the changing volatility of output and labor growth in the postwar Japanese economy. A time-varying vector autoregression (VAR) with drifting coefficients and stochastic volatilities is modeled and long-run restriction is used to identify technology shocks in line with Gal´ı (1999) and Gal´ı and Gambetti (2009). We find that technology shocks are responsible for significant changes in the output volatility throughout the total sample period while the volatility of labor input is largely attributed to nontechnology shocks. The driving force behind these results is the negative correlation between labor input and productivity, which holds significantly and persistently over the postwar period.

  Introduction

  Most industrialized economies have experienced a substantial decline in output growth volatility in the postwar period, a phenomenon known as “the Great Moderation.” In the U.S. case, many authors have investigated the characteristics of and reasons for the Great Moderation that started in the mid-1980s. Possible explanations include good luck, better monetary policy, and changes in the economic structure, such as inventory management and labor market statistics. Based on the time-varying and Markov-switching structural VAR methods, the good luck hypothesis has been advocated by many authors, including Stock and Watson (2002, 2005), Primiceri (2005), Sims and Zha (2006), Arias, Hansen, and Ohanian (2006), and Gambetti, Pappa, and Canova (2006). On the other hand, the good policy hypothesis has been supported by many other authors including Clarida, Gal´ı, and Gertler (2000), Lubik and Schorfheide (2004), Boivin and Giannoni (2006), and Benati and Surico (2009). There are different approaches to considering structural changes, including Campbell and Hercowitz (2005) and Gal´ı and Gambetti (2009). In particular, Gal´ı and Gambetti (2009) capture the changing patterns of the correlations among the labor market variables.

  2010.07

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• The Role of the IMF Under the Noise of Signals
  Jun-Hyung Ko

  Abstract

  This paper theoretically analyzes the Early Warning System (EWS) of the IMF based on the principal-agent model. We search for trade-off of the optimal contract of the IMF under the interim intervention and the noise of the signal. The main findings are as follows. First, when the net loss coming from noise under good fundamental is higher than the net gain by interim intervention under bad fundamental, the debtor country exerts less effort as the noise effect becomes larger. Secondly, when the net loss in good fundamental is smaller than the net gain in the bad fundamental, accurate signal may give rise to the moral hazard problem. Thirdly, when the marginal utility by the intervention of the IMF is higher on bad fundamentals than on good fundamentals, the higher ability of the IMF to mitigate the crisis will elicit a less policy effort from the country. On the other hand, when the economy has higher marginal utility in case of good fundamentals, deeper intervention of the IMF offers an incentive of a greater policy effort to the country. Fourthly, mandating the IMF to care about the country welfare as well as safeguarding its resources, does not necessarily mean the debtor country will exerts less efforts.

  Introduction

  As more developing countries liberalize their capital control regulations, and as more investors invest huge money abroad, the possiblity of financial crisis could get higher. Then vulnerable countries are always at the risk of currency crisis in exchange with chance of welcoming beneficial capital flows. The IMF is expected to take necessary action to prevent crisis by forecasting and advising developing country authorities. The EWS seems to be a good tool for this challenging work. The IMF is expected to help developing countries build needed and reliable economic statistical database. It is a foundation of every EWS studies for crisis prevention. Prevention of possible crisis concerns with both the effort of the program country and the IMF.

  2010.06

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• News shocks and the Japanese macroeconomic fluctuations
  Jun-Hyung KoKensuke MiyazawaTuan Khai Vu

  Abstract

  Are the changes in the future technology process, the so-called “news shocks,” the main contributors to the macroeconomic fluctuations in Japan over the past forty years? In this paper, we take two structural vector-auto-regression (SVAR) approaches to answer this question. First, we quantitatively evaluate the relative importance of news shocks among candidate shocks, estimating a structural vectorerror-correction model (SVECM). Our estimated results suggest that the contribution of the TFP news shocks is nonnegligible, which is in line with the findings of previous works. Furthermore, we disentangle the source of news shocks by adopting several kinds of restrictions and find that news shocks on investment-specific technology (IST) also have an important effect. Second, to minimize the gap between the SVAR approach and the Bayesian estimation of a dynamic stochastic general equilibrium model, we adopt an alternative approach: SVAR with sign restrictions. The SVAR with sign restrictions reconfirms the results that the news shocks are important in explaining the Japanese macroeconomic fluctuations.

  Introduction

  Are news shocks the main source of the Japanese macroeconomic fluctuations? Previous works have presented different results. Beaudry and Portier (2005) employ a SVECM with a combination of long-run and short-run restrictions to divide the TFP shocks into surprise and news components. The news shock in their econometric model is the shock that does not have an impact effect on the current TFP but increases the future TFP several quarters after. They find that the estimated TFP news shock is a dark horse behind the Japanese macroeconomic fluctuations, and that a negative news shock occurred in the beginning at the 1990s which might have been relevant with the so-called “lost decade.” Fujiwara, Hirose, and Shintani (2011) assess the importance of news shocks based on an estimation of a dynamic stochastic general equilibrium (DSGE) model using a Bayesian method. They introduced one-to-four-quarters-ahead TFP news shocks and find that the TFP news shocks are nonnegligible but minor in explaining the macroeconomic fluctuations in Japan.

  2010.06

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