Productivity Slowdown in Japan's Lost Decades: How Much of It Can Be Attributed to Damaged Balance Sheets?*

After the global financial crisis, slowdowns of total factor productivity (TFP), often measured as Solow residual, have been observed across major countries. This study offers an explanation for this by focusing on Japan's crises during 1990s. We first incorporate credit constraints, intermediaries (FIs) and firms, input–output structure into standard New Keynesian model, show that model delivers multiple channels through which damaged balance sheets reduce TFP. then estimate using Japanese data, adverse shocks to FIs' played a substantial role in lowering