Payment uncertainty and the productivity slowdown

Keiichiro Kobayashi

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper proposes a simple theory to explain the productivity slowdown observed in Japan during the 1990s. Under a forbearance policy by the government toward nonperforming loans, one keeping insolvent firms afloat, other economic agents become exposed to a higher risk of not being paid by their customers (payment uncertainty). It is shown that the payment uncertainty, working through a competitive market, causes an endogenous decline in the number of firms that are involved in the production of one good. Resulting disruptions of the division of labor among firms lower macroeconomic productivity. The performance of the model is compared with that of the Japanese economy in the 1990s.

Original languageEnglish
Pages (from-to)231-248
Number of pages18
JournalMacroeconomic Dynamics
Volume11
Issue number2
DOIs
Publication statusPublished - 2007 Apr 1

Keywords

  • Division of labor
  • Japan's lost decade
  • Payment uncertainty
  • Productivity

ASJC Scopus subject areas

  • Economics and Econometrics

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