The Transmission of Aggregate Supply and Aggregate Demand Shocks in Japan : Has There Been a Structural Change ?

Despite expansionary fiscal and monetary policies, the Japanese real economy has been stagnatingsince the bubble bursting in the early nineties. Within a multivariate setup, this paper proposesto test for and date a possible structural shift in the response of Japanese macroeconomic fluctuations toaggregate supply and aggregate demand shocks. The econometric methodology directly derives from Andrews[1993] and Bai, Lumsdaine and Stock [1998] theoretical results. Our empirical study from monthlypost-1980 observations reveals i) a significant structural break in December 1991, and ii) a sharp decreasein the influence of demand shocks on Japanese output fluctuations after this date.