Regional business cycles in Japan

In previous studies of regional business cycles in Japan, critical differences in the amplitudes and the turning points in business cycles by region were revealed. However, there is a problem in the previous studies; they relied on one series, typically an index of industrial production in manufacturing sectors, hence, it is necessary to include information on sectors other than manufacturing to provide a more complete measure of the business conditions of a region. Specifically, we extract a regional business index from four business indicators using the principal components and applied the regime switching model to identify the turning points in regional business cycles. Our result shows that the sector that generates the greatest influence on the business cycles differs by region. Furthermore, different regions have different features also from the viewpoint of the turning points of business cycles.