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The Japanese Economic Model: JEM*1

March 2004
Ippei Fujiwara *2
Naoko Hara *3
Yasuo Hirose *4
Yuki Teranishi *5

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  • *1 We are grateful especially to Eiji Maeda and Toshitaka Sekine not only for their academic support but also for their encouragement to pursue this new model building project.
    The views in this paper should not be taken to be those either of the Bank of Japan, any of its respective monetary policy or other decision making bodies. Further, any errors remain our sole responsibility.
  • *2 Corresponding author, Research and Statistics Department, e-mail:
  • *3 Research and Statistics Department, e-mail:
  • *4 Currently at the Johns Hopkins University, e-mail:
  • *5 Research and Statistics Department, e-mail:


In this paper, we set out the JEM (Japanese Economic Model), a large macroeconomic model of the Japanese Economy. Although the JEM is a theoretical model designed with a view to overcoming the Lucas (1976) critique of traditional large macroeconomic models, it can also be used for both projection and simulation analysis. This is achieved by embedding a mechanism within which "short-run dynamics," basically captured by a vector autoregression model, eventually converge to a "short-run equilibrium," which is defined using a dynamic general equilibrium-type model.

JEL Classification:
C30; E10; E17; E50

Key words:
Large Macroeconomic Model; Monetary Policy;
Numerical Method; Projection;