What explains the recent fluctuations in Japan’s output? A structural factor analysis of Japan’s industrial production

Munich Personal RePEc Archive

What explains the recent fluctuations in Japan’s output? A structural factor

analysis of Japan’s industrial production

Muto, Ichiro and Kumano, Yusuke and Nakano, Akihiro

July 2013

Online at https://mpra.ub.uni-muenchen.de/48615/

MPRA Paper No. 48615, posted 26 Jul 2013 05:19 UTC

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Figure 1: Japan's industrial production

110

120 (Index)

90 100 110

120 (Index)

70 80 90 100 110

120 (Index)

Source: Ministry of Economy, Trade and Industry.

Figure 2: Growth rate of Japan's aggregate industrial production

70 80 90 100 110 120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(Index)

g p gg g p

60 70 80 90 100 110 120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(Index)

5 10

15 (%, annual) 60

70 80 90 100 110 120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(Index)

10 -5

0 5 10 15

Other

General machinery (%, annual)

60 70 80 90 100 110 120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(Index)

-25 -20 -15 -10 -5 0 5 10 15

Other

General machinery Chemicals

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Information and communication electronics equipment Electrical machinery

Electronic parts and devices Aggregate industrial production (%, annual)

60 70 80 90 100 110 120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(Index)

-25 -20 -15 -10 -5 0 5 10 15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Other

General machinery Chemicals

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Information and communication electronics equipment Electrical machinery

Electronic parts and devices Aggregate industrial production (%, annual)

Figure 3: Decomposition of average structural shocks

10

15 (Index)

10 -5

0 5 10

15 (Index)

25 -20 -15 -10 -5 0 5 10 15

Sectoral shocks Aggregate shocks Average structural shocks (Index)

-30 -25 -20 -15 -10 -5 0 5 10 15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sectoral shocks Aggregate shocks Average structural shocks (Index)

Figure 4: Impulse responses of sectoral production growth to a negative aggregate shock

-30 -25 -20 -15 -10 -5 0 5 10 15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sectoral shocks Aggregate shocks Average structural shocks (Index)

0

1 (%, annual) -30

-25 -20 -15 -10 -5 0 5 10 15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sectoral shocks Aggregate shocks Average structural shocks (Index)

-3 -2 -1 0 1

Non-ferrous metals General machinery

Electrical machinery (%, annual)

-30 -25 -20 -15 -10 -5 0 5 10 15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sectoral shocks Aggregate shocks Average structural shocks (Index)

-6 -5 -4 -3 -2 -1 0 1

Iron and steel

Electronic parts and devices Non-ferrous metals

Information and communication electronics equipment

General machinery Electrical machinery (%, annual)

Motor vehicle parts

Note: The size of the shock is one standard deviation in the observation period (1978:Q1 - 2012:Q4).

-30 -25 -20 -15 -10 -5 0 5 10 15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sectoral shocks Aggregate shocks Average structural shocks (Index)

-7 -6 -5 -4 -3 -2 -1 0 1

t=0 1 2 3 4 5 6

Iron and steel

Electronic parts and devices

Transport equipment (excl. motor vehicle parts)

Non-ferrous metals

Information and communication electronics equipment

General machinery Electrical machinery (%, annual)

Motor vehicle parts

(a) Sectoral shock to the electronic parts and devices industry

Figure 5: Impulse responses of sectoral production growth to a negative sectoral shock

-2 -1 0

1 (%, annual)

Electrical machinery General machinery

5 -4 -3 -2 -1 0 1

Information and communication electronics equipment

Electronic parts and devices (%, annual)

Precision instruments Electrical machinery General machinery

Note: The size of the shock is one standard deviation in the observation period (1978:Q1 - 2012:Q4).

(b) Sectoral shock to the motor vehicle parts industry

-4 -3 -2 -1 0 1

t=0 1 2 3 4 5 6

Information and communication electronics equipment

Electronic parts and devices (%, annual)

Precision instruments Electrical machinery General machinery

(b) Secto a s oc to t e oto ve c e pa ts dust y

0

1 (%, annual) -5

-4 -3 -2 -1 0 1

t=0 1 2 3 4 5 6

Information and communication electronics equipment

Electronic parts and devices (%, annual)

Precision instruments Electrical machinery General machinery

-2 -1 0

1 (%, annual)

General machinery

Transport equipment (excl. motor vehicle parts) Motor vehicle parts -5

-4 -3 -2 -1 0 1

t=0 1 2 3 4 5 6

Information and communication electronics equipment

Electronic parts and devices (%, annual)

Precision instruments Electrical machinery General machinery

Note: The size of shock is one standard deviation in the observation period (1978:Q1 - 2012:Q4).

-4 -3 -2 -1 0 1

t=0 1 2 3 4 5 6

(%, annual)

General machinery

Transport equipment (excl. motor vehicle parts) Motor vehicle parts -5

-4 -3 -2 -1 0 1

t=0 1 2 3 4 5 6

Information and communication electronics equipment

Electronic parts and devices (%, annual)

Precision instruments Electrical machinery General machinery

Figure 6: Decomposition of the growth rate of Japan's aggregate industrial production

20 (%, annual)

5 10 15

20 (%, annual)

-5 0 5 10 15 20

Other (%, annual)

-20 -15 -10 -5 0 5 10 15 20

Other

General machinery Chemicals

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Information and communication electronics equipment Electrical machinery

Electronic parts and devices (%, annual)

-30 -25 -20 -15 -10 -5 0 5 10 15 20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Other

General machinery Chemicals

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Information and communication electronics equipment Electrical machinery

Electronic parts and devices Aggregate shocks

Aggregate industrial production (%, annual)

Figure 7: Correlation coefficients between aggregate shocks and economic variables

Domestic financial conditions Foreign GDP growth

1.0 (Index)

1.0 (Index)

0.2 0.4 0.6 0.8

1.0 (Index)

0.2 0.4 0.6 0.8

1.0 (Index)

-0.4 -0.2 0.0 0.2 0.4 0.6 0.8

1.0 (Index)

-0.4 -0.2 0.0 0.2 0.4 0.6 0.8

1.0 (Index)

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

Correlation coeficients in 5-year roling windows (Index)

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

(Index)

Real exchange rate Service sector activity

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

Correlation coeficients in 5-year roling windows (Index)

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

(Index)

0.8

1.0 (Index)

0.8

1.0 (Index) -1.0

-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

Correlation coeficients in 5-year roling windows (Index)

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

(Index)

0.2 0.4 0.6 0.8

1.0 (Index)

0.2 0.4 0.6 0.8

1.0 (Index) -1.0

-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

Correlation coeficients in 5-year roling windows (Index)

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

(Index)

-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8

1.0 (Index)

-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8

1.0 (Index) -1.0

-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

Correlation coeficients in 5-year roling windows (Index)

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

(Index)

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

(Index)

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

1985 1990 1995 2000 2005 2010

(Index)

Figure 8: Intersectoral spillover effects on the growth rate of Japan's sectoral industrial production (2010-2012)

50 (%, annual)

10 30

50 (%, annual)

-50 -30 -10 10 30 50

Other

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Aggregate shocks

(%, annual)

Electrical machinery -70

-50 -30 -10 10 30 50

2010 2011 2012

Other

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Aggregate shocks

Growth rate of transport equipment (excl. motor vehicle parts) production (%, annual)

y

5

10 (%, annual) -70

-50 -30 -10 10 30 50

2010 2011 2012

Other

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Aggregate shocks

Growth rate of transport equipment (excl. motor vehicle parts) production (%, annual)

-5 0 5 10

Other

Electronic parts and devices (%, annual)

-70 -50 -30 -10 10 30 50

2010 2011 2012

Other

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Aggregate shocks

Growth rate of transport equipment (excl. motor vehicle parts) production (%, annual)

-15 -10 -5 0 5 10

2010 2011 2012

Other

Electronic parts and devices Electrical machinery Aggregate shocks

Growth rate of electrical machinery production (%, annual)

-70 -50 -30 -10 10 30 50

2010 2011 2012

Other

Motor vehicle parts

Transport equipment (excl. motor vehicle parts) Aggregate shocks

Growth rate of transport equipment (excl. motor vehicle parts) production (%, annual)

Figure 9: Inventory ratio

25 30

Manufacturing

l i l hi

(%, annual)

10 15 20 25 30

Manufacturing Electrical machinery Transport equipment (%, annual)

0 5 10 15 20 25 30

1960 1968 1976 1984 1992 2000 2008

Manufacturing Electrical machinery Transport equipment (%, annual)

Figure 10: Decomposition of Japan's industrial production (2010-2012)

5 10 15 20 25 30

1960 1968 1976 1984 1992 2000 2008

Manufacturing Electrical machinery Transport equipment (%, annual)

(Index from base point in 2010) 0

5 10 15 20 25 30

1960 1968 1976 1984 1992 2000 2008

Manufacturing Electrical machinery Transport equipment (%, annual)

0 3

6 (Index, from base point in 2010) 0

5 10 15 20 25 30

1960 1968 1976 1984 1992 2000 2008

Manufacturing Electrical machinery Transport equipment (%, annual)

-9 -6 -3 0 3 6

Other

General machinery Chemicals

(Index, from base point in 2010) 0

5 10 15 20 25 30

1960 1968 1976 1984 1992 2000 2008

Manufacturing Electrical machinery Transport equipment (%, annual)

-18 -15 -12 -9 -6 -3 0 3 6

Other

General machinery Chemicals

Transport equipment (excl. motor vehicle parts) Information and communication electronics equipment Electrical machinery

Electronic parts and devices Aggregate shocks

Aggregate IP

(Index, from base point in 2010) 0

5 10 15 20 25 30

1960 1968 1976 1984 1992 2000 2008

Manufacturing Electrical machinery Transport equipment (%, annual)

-18 -15 -12 -9 -6 -3 0 3 6

2010 2011 2012

Other

General machinery Chemicals

Transport equipment (excl. motor vehicle parts) Information and communication electronics equipment Electrical machinery

Electronic parts and devices Aggregate shocks

Aggregate IP

(Index, from base point in 2010)