The Intranational Business Cycle in Japan


This paper studies the intranational business cycle – that is the set of regional (prefectural) business cycles – in Japan. One reason for choosing to examine the Japanese case is that long time series of relatively detailed data are available. A Hodrick-Prescott filter is applied to identify cycles in annual data from 1955 to 1995 and bilateral cross-correlations of prefectural GDPs are calculated for all pairs of prefectures, in our results we find fairly high cross-correlations. The paper then turns to an econometric explanation of the cross-correlation coefficients in the augmented gravity model framework. Two prefectures with similar GDPs and a shorter distance between them lead to business cycle synchronization whilst those with larger regional gaps in factor endowments (capital, labor and human capital) result in more idiosyncratic business cycle.

Keywords: Intranational business cycle, Hodrick-Prescott filter, Optimal Currency Area, Gravity Model, Heckscher-Ohlin theorem.
JEL Classification: E32, F41, R11

Michael ARTIS
Swansea University, and CEPR

Toshihiro OKUBO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059