The Multi-Sector Business Cycle Model and Aggregate Shocks: An Empirical Analysis

This paper discusses the applicability of a multi-sector business cycle model to the Japa¬nese economy. Through dynamic factor analysis, output fluctuations are broken down into aggregate and sectoral shocks. It is shown that independent sectoral shocks are more sig¬nificant than common shocks, which is consistent with the model proposed by Long and Plosser (1983). In addition, the paper reveals that the importance of aggregate shocks increased during the so-called “Bubble” period in the late 1980s.