Construction and Analysis of a Basic Macro-economic and Earthquake Disaster Model with a Supply Chain Framework and Constraints in Finance Lending Capacity

To perform an analysis on the interaction between an earthquake disaster and economic growth and fiscal policy, we build a basic macro-economic model that incorporates a complex supply chain framework.In particular, 1) Modelling the multi-layered production process (supply chain) that separates intermediate goods and final products, and 2) Reflecting the constraints in finance (credit) lending capacity to business enterprises. With regard to the latter, the loan amount is set at the constant rate of intermediate companies’ retained earnings (profit) in a simplified financial accelerator model. 1) Short-term effect from post-disaster disruption in the supply chain (a decrease in productivity of intermediate goods in the model), 2) Short-term to medium-term effect from lowered lending capacity by financial institutions, and 3) Medium-to long-term effect associated with rising interest rates accompanying the accumulation of public debt.