Abstract

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 in order 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. Chubu, Hokuriku, Chugoku and Kyushu are more influenced by production activity and consumption change while production activity and employment dominate in Tohoku, Kanto and Shikoku. Kansai and Hokkaido are influenced by all factors of production activity, consumption change and employment. Furthermore, different regions have different features also from the viewpoint of the turning points of business cycles. The expected duration of a business cycle in Kanto and Kansai is similar to that of the national cycle while those in Hokkaido, Chubu, Hokuriku, Chugoku and Shikoku are shorter. The share of the expansion phase in Tohoku and Kyushu are longer than that of the nation-wide business cycle.