The impact of technology shocks on the Japanese business cycle-An empirical analysis based on Japanese industry data

In order to investigate the impacts of technology shocks on the recent Japanese business cycles, we construct an aggregate technological measure from industry-based data. Our approach is to estimate production function by industry, by controlling for the returns to scale factor and unobserved factor utilization. We find that positive technology shocks result in a contraction of labor input on impact. This result implies that the standard real business cycle (RBC) model is not supported and the new Keynesian model or the labor reallocation model is a candidate to explain the Japanese business cycles. From further empirical studies, we find that the labor reallocation model is plausible for explaining the Japanese business cycles.