Sources of Cycles in Japan, 1975-1987

A simple real model is used to decompose movements of aggregate inventories and output in Japan during 1975 to 1987 to three components, one due to cost shocks, one due to demand shocks, and one due to' shocks from abroad. Cost shocks are estimated to account for about one tenth of the movement in GNP, one half of the movement in inventories. Most of the remaining movement in GNP is due to demand shocks, in inventories to shocks from abroad. Confidence intervals around these point estimates are, however, very large.