Estimation of Aggregate Demand and Supply Shocks Using Commodity Transaction Data

Using commodity-level transaction data, we estimate aggregate demand and supply shocks. When using this for continuing goods, i.e., those that exist in both the current and the base periods, the demand shock preceding a change in the consumption tax rate in Japan on April 1, 2014 is negligible. This contradicts the conventional viewpoint on stockpiling behavior before a tax rate increase. However, when considering new goods appearing within a year, the estimated demand shock becomes positive, which suggests that product turnover is critical when estimating demand shocks. Following the sharp and temporary fall associated with the Great East Japan Earthquake in 2011, the estimated supply shocks were virtually zero until the end of 2013. The supply shocks then became negative and remained at a very low level until the change in the consumption tax rate, which suggests that the increases in the prices during this period reflect, at least in parts, an inward shift of the supply curves.