Business Cycles, Theory and Empirical Applications for the Japanese Economy

von Sebastian Kühnl

Seminararbeit (SoSe 2016)
Prof. Ctirad Slavík (Juniorprofessur für Macroeconomic Theory)

Abstract

This seminar paper covers the macroeconomic development of Japan and the compatibility of two different RBC models with the recovered statistics.

The first section covers the computation of relevant statistics for Japan and total factor productivity as Solow residual on basis of two different production functions. In the beginning, the necessary data collection, preparation and detrending are covered. Uncommon behavior is explained by examining the economic history of Japan. Following the calculation of all relevant statistics, basic business cycle patterns and deviations from those are explained and total factor productivity gets computed.

The second section begins with the calibration of a simple stochastic RBC model. Afterwards, the statistics generated by the model are compared to those recovered in the first part. It ends with a conclusion about the validity of the used model.

The third section first covers the solution of an RBC model with endogenous labor by hand and in Dynare. Thereafter, the statistics generated by simulating the model are compared to those recovered in the first part. It ends with a conclusion about the validity of the used model, how it improved and what can still be changed in order to improve its performance.

The results indicate that the basic characteristics are already replicated in large parts by the simple stochastic model. Nevertheless, some measures show discrepancies, which leads to the conclusion that the used simple stochastic RBC model might be able to only replicate very basic statistics but does not describe reality to its full extent.

It can be shown that introducing variable labor and positive, but decreasing, marginal returns of capital and labor improves the quality of the model but still leaves room for further improvement.