An Analysis of Regional Business Cycles using Prefectural Composite Indexes in Japan

The purpose of this paper is to analyze regional business cycle movements in Japan. We construct regional monthly composite indexes by 47 prefectures over the period 1985-2010. In order to characterize the deviation of regional economies from the nationwide economy, we propose a method to match each prefectural composite index sequence to the national composite index sequence. High performance of the matching analysis indicates that regional deviations involve leads and lags in both the timing of the business cycle and time trends, although certain disparities remain for some prefectures. The analysis also suggests that there is a structural change between the post-bubble era of the 1990s and the long expansion phase of 2002-2008. Only a limited number of prefectures show better performance than the national average, while the majority tend to fall behind during the expansion phase. Also, we investigate the factors that exert influence on prefectural economies, and find that fiscal and monetary measures possibly help stimulate regional economies.