Direct Evidence for Synchronization in Japanese Business Cycle

TL;DR

This study provides direct evidence of synchronization among Japanese industrial sectors during the business cycle, showing that sectors oscillate in unison due to common shocks, with phase analysis revealing the dominant influence of these shocks.

Contribution

It introduces phase-based analysis to demonstrate synchronization in the Japanese business cycle and distinguishes between common and individual shocks using phase time-series.

Findings

Angular frequencies are nearly identical across sectors.

Partial phase locking observed among sectors.

Common shocks dominate during specific years.

Abstract

We have analyzed the Indices of Industrial Production (Seasonal Adjustment Index) for a long period of 240 months (January 1988 to December 2007) to develop a deeper understanding of the economic shocks. The angular frequencies estimated using the Hilbert transformation, are almost identical for the 16 industrial sectors. Moreover, the partial phase locking was observed for the 16 sectors. These are the direct evidence of the synchronization in the Japanese business cycle. We also showed that the information of the economic shock is carried by the phase time-series. The common shock and individual shocks are separated using phase time-series. The former dominates the economic shock in all of 1992, 1998 and 2001. The obtained results suggest that the business cycle may be described as a dynamics of the coupled limit-cycle oscillators exposed to the common shocks and random individual shocks.