Abstract

What is the role of news shocks in the macroeconomic fluctuations in the Japanese economy, and what is the source of the news shocks? In this paper, we estimate a structural-vector-error-correction model (SVECM) and assess the relative role of news shocks on future total factor productivity (TFP) following the methodology of Beaudry and Portier (2005). We find that anticipated technology plays a substantial role in explaining the Japanese macroeconomic movements. To answer the second question, we investigate whether the TFP process in the U.S. can be the source of the Japanese news shocks. We identify U.S. TFP shocks in both surprise and anticipated forms and capture the international technology diffusion process. We find that the U.S. TFP shocks can explain a large part of the Japanese TFP process in the long run, and contributes considerably to the Japanese macroeconomic fluctuations.

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