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Did Japanese consumers become more prudent during 1998-1999? Evidence from household-level data

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  • Masahiro Hori
  • Satoshi Shimizutani

Abstract

This paper explores empirically whether Japanese consumers became more prudent in the second half of the 1990s, a decade in which Japan registered historically low economic growth. Employing the methodology developed by Dynan (1993), this study uses micro-level data from the Family Savings Survey and the Family Income and Expenditure Survey to estimate the coefficient of prudence for Japanese households in the second half of the 1990s. The estimates reveal that the coefficient of prudence is positive and statistically significant in the 1998-1999 period. The obtained value for the coefficient of prudence is four, which is much higher than that estimated for US households (not significantly different from zero) or UK households (around 2). The estimated coefficient for young households is higher still, which is consistent with simulation studies conducted by Gourinchas & Parker (2002) showing that precaution is the most important saving motive for younger households.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 20 (2006)
Issue (Month): 2 ()
Pages: 197-209

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Handle: RePEc:taf:intecj:v:20:y:2006:i:2:p:197-209

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Related research

Keywords: Precautionary saving; coefficient of prudence; Euler equation; household data;

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References

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  1. Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
  2. DREZE, Jacques H. & MODIGLIANI, Franco, . "Cosumption decisions under uncertainty," CORE Discussion Papers RP -119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Philip Merrigan & Michel Normandin, 1994. "Precautionary Saving Motives: An Assessment from U.K. Time Series of Cross-Sections," Cahiers de recherche CREFE / CREFE Working Papers 29, CREFE, Université du Québec à Montréal.
  4. Charles Yuji Horioka & Hideki Fujisaki & Wako Watanabe & Takatsugu Kouno, 2000. "Are Americans More Altruistic than the Japanese? A U.S.-Japan Comparison of Saving and Bequest Motives," NBER Working Papers 7463, National Bureau of Economic Research, Inc.
  5. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  6. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
  7. Giucca, P. & Jappelli, T. & Terlizzese, D., 1992. "Earning Uncertainty and Precautionary Saving," Papers 161, Banca Italia - Servizio di Studi.
  8. Horioka, C.Y. & Watanabe, W., 1996. "Why Do People Save? A Micro-Analysis of Motives for Household Saving in Japan," ISER Discussion Paper 0412, Institute of Social and Economic Research, Osaka University.
  9. Orazio P. Attanasio & Hamish Low, 2004. "Estimating Euler Equations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 405-435, April.
  10. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  11. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  12. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Shiba Suzuki, 2009. "Risks after disasters: a note on the effects of precautionary saving on equity premiums," Economics Bulletin, AccessEcon, vol. 29(1), pages 328-337.
  2. Yasuyuki Sawada & Kazumitsu Nawata & Masako Ii & Jeong-Joon Lee, 2007. "Did the Credit Crunch in Japan Affect Household Welfare? An Augmented Euler Equation Approach Using Type 5 Tobit Model," CARF F-Series CARF-F-099, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  3. Bessho, Shun-ichiro & Tobita, Eiko, 2008. "Unemployment risk and buffer-stock saving: An empirical investigation in Japan," Japan and the World Economy, Elsevier, vol. 20(3), pages 303-325, August.
  4. Miyazaki, Tomomi, 2010. "The effects of fiscal policy in the 1990s in Japan: A VAR analysis with event studies," Japan and the World Economy, Elsevier, vol. 22(2), pages 80-87, March.

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