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Nishimura et al. [Nishimura, K.G., Nakajima, T., Kiyota, K., 2005. Does the natural selection mechanism still work in severe recessions? Examination of the Japanese economy in the 1990s. Journal of Economic Behavior and Organization 58, 53–78] analyze the entry/exit behavior of Japanese firms during the 1990s and find that relatively efficient firms exited while relatively inefficient firms survived during the banking-crisis period of 1996–1997. They conclude that the natural selection mechanism (NSM) apparently malfunctions during severe recessions, but we offer a more plausible interpretation: NSM continued to function effectively even during this period, but aberrant banking practices caused a shift in the type of natural selection from directional to disruptive selection, with the most efficient as well as the least efficient firms being favored and firms of intermediate efficiency being selected against.

The Euro area economy has been recovering modestly since 2008. However, the recoveries in the Euro area countries have been very different. We find that the difference in recoveries after 2008 is projected well by Economic Complexity Indices (ECIs) before 2007, and the economic performance of the low ECI countries after 2008 is poorer than that of the high ECI countries. The result indicates that product and firm diversity is the major factor of our problem. To explain our findings, we analyze a heterogeneous-agent model based on the multisector Schumpeterian endogenous growth model with firm entry and exit and firm diversity. In our numerical analysis, we show that an economy that has low firm diversity is fragile to unanticipated exogenous environmental changes that can precipitously slow down the growth rate. The result explains our empirical findings and indicates that policies to increase firm diversity are required to solve the problem. We conclude that the significance of firm diversity in each country should not be ignored.

In this paper, we propose an evolutionary extension of Schumpeterian endogenous growth model with multi-sector by introducing the three types of natural selection: stabilizing selection, directional selection, and disruptive selection. Based on them, the survival of firms is determined in each period. As a metrics of survival rates, we incorporate "firm fitness'' in the economy into a well-known endogenous economic growth model. Moreover, in this model, firms can enter, exit, and move among sectors. In addition, the model permits us to simulate the economy's aggregate productivity as well as firm diversity in the three types of natural selection. For stabilizing and directional selection when firms enter and exit, firm diversity decreases, but aggregate productivity greatly improves. On the other hand, in the case of disruptive selection, aggregate productivity increases only by a small amount, but diversity increases. Thus, stabilizing and directional selection are more effective for improving short-run aggregate productivity. But firms will become weaker in the presence of future environmental changes such as innovations of general-purpose technology, climate changes, and social regime changes, because diversity decreases. With drastic environmental changes, the fall-off in aggregate productivity will be great. In contrast, disruptive selection is not effective for improving short-run aggregate productivity. The economy, however, will become relatively robust in the occurrence of future environmental changes, since firm diversity increases.

Did "Quantitative and Qualitative Monetary Easing (QQE),'' which has been conducted by the Bank of Japan from April 2013, end the long deflation of the Japanese economy? Answering the question, we constructed a linear projection model to estimate Ex-Ante Real interest Rates (EARRs) and Inflation Expectations (IEs) based on Japanese macroeconomic data. In our empirical study, we obtain two major results. The first result shows that we can observe a sharp decline of an EARR and the sudden increase of an IE after March, 2013, which is consistent with the actual core inflation. Second, estimating dummy variables in the model, we find that a structural break occurred in April, 2013. A regime change (regime shift) of Japanese monetary policy occurred in March or April, 2013. They also present that QQE has a strong effect on the Japanese economy and realized the sharp recovery in 2013. We conclude that the regime change of monetary policy end the Japanese long deflation in 2013.

In this paper, we propose an evolutionary extension of Schumpeterian endogenous growth model with multi-sector by introducing the three types of natural selection: stabilizing selection, directional selection, and disruptive selection. Based on them, the survival of firms is determined in each period. As a metrics of survival rates, we incorporate "firm fitness" in the economy into the well-known endogenous economic growth model. Moreover, in this model, firms can enter, exit, and move among sectors based on the fitness. In addition, the model permits us to simulate the economy's firm diversity as well as real growth rates in the three types of natural selection. Based on the model with them, we simulate the economy with or without "Unanticipated" Future Environmental Changes (UFEC) using the Monte Carlo method. In the no-UFEC economy of directional selection, the firm diversity of the economy converges to the lower level rather than the firm diversity of the stabilizing selection economy, but the real growth rate of it approaches highest level rather than the real growth rates of the stabilizing- and disruptive-selection economies. On the other hand, in the no-UFEC economy of disruptive selection, the firm diversity of it converges to the highest level rather than the stabilizing- and directional-selection economies, while the real growth rate of it approaches the same level of stabilizing-selection economy. Thus, directional selection in the no-UFEC economy is most effective for improving real growth rate in the steady state. However, the presences of UFECs alter the implications. After a UFEC occurs, the great fall-off of the real growth rate is observed in the economy of directional selection, while the real growth rate in the disruptive-selection economy is kept stable. This indicates that the UFEC economy of directional selection is weaker in the presence of UFEC such as innovations of general-purpose technology, climate changes, and social regime changes, because low diversity occurs. Contrastingly, the UFEC economy of disruptive selection after UFEC is more robust rather than the directional-selection economy, since the highest firm diversity occurs. Although the disruptive selection in the UFEC economy is not most effective for improving real growth rates in the long run.

Nishimura, Nakajima, and Kiyota (2005) analyze the entry/exit behavior patterns of Japanese firms during the 1990s and find that relatively efficient (high total factor productivity (TFP)) firms exited while relatively inefficient (low TFP) firms survived during the banking-crisis period of 1996-97. They conclude from this finding that the natural selection mechanism (NSM) apparently malfunctions during severe recessions, but we offer a much more plausible interpretation: the NSM continued to function effectively even during this period, but aberrant banking practices (in particular,forbearance lending(evergreening) and the forcible withdrawal of loans and/or the reluctance to lend) caused a shift in the type of natural selection from directional selection to disruptive selection, with the most efficient (highest TFP) firms as well as the least efficient (lowest TFP) firms being favored and firms of intermediate efficiency and TFP being selected against.