DP6686 The Intranational Business Cycle: Evidence from Japan

Author(s): Michael J Artis , Toshihiro Okubo

Publication Date: February 2008

Keyword(s): Hodrick-Prescott filter , Intranational business cycle , Optimal Currency Area , Gravity Model , Market potential , Heckscher Ohlin theorem

JEL(s): E32 , F41 , R11

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP6686.asp.asp

Abstract: This paper studies the intranational business cycle - that is the set of regional (prefecture) business cycles - in Japan. One reason for choosing to examine the Japanese case is that long time series and relatively detailed data are available. A Hodrick-Prescott filter is applied to identify the cycles in annual data from 1955 to 1995 and bilateral cross-correlation coefficients are calculated for all the pairs of prefectures. Comparisons are made with similar sets of bilateral cross correlation coefficients calculated for the States of the US and for the member countries of a "synthetic Euro Area". The paper then turns to an econometric explanation of the cross-correlation coefficients (using Fisher’s z-transform), in a panel data GMM estimation framework. An augmented gravity model provides the basic model for the investigation, whilst the richness of the data base also allows for additional models to be represented.