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This paper shows that a real business cycle model with TFP shocks can reproduce the Japanese fluctuations over the 1990s in output, consumption and investment. This implies that standard macro models can go a long way in explaining why Japan suffered its growth slowdown conditional on the evolution of TFP. Rather than taking a strong stand in the fundamental nature of the shocks, they take the wage markup as a reasonable reduced form measure of several shocks that can be represented as markups.
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