Price Expectations and Consumption under Deflation: Evidence from Japanese Household Survey Data
AbstractThe Japanese economy has experienced price deflation since the mid-1990s. Despite the importance of overcoming deflation, there has been little recent research on price expectations in Japan. This paper takes advantage of an original and rich quarterly household-level data set from the “Kokumin Seikatsu Monitors” to estimate average price expectations, examine the factors that affect price expectations, and examine how changes in price expectations have affected household consumption. Our estimates indicate that average price expectations ranged from minus 0.2 to zero percent in 2001 and 2002. However, there was an increase to 1 percent in the first quarter of 2003, followed by a decline to 0.2 percent in the second quarter, and a steady increase toward 0.8 percent by the first quarter of 2004. Price expectations depend on current price movements and lagged expectations. A series of quantitative easing monetary policies were not very effective in changing the price expectations, since the policy announcements caused revision of price expectations only for a small portion, i.e., 5-10% of people surveyed. The jump observed in the first quarter of 2003 was a reaction to the outbreak of the Iraq war. Our study also confirms that deflationary expectations discourage household consumption, mainly durable consumption, by delaying the timing of purchases, suggesting that the deflationary expectations should be upwardly revised to restore a vital Japanese economy.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d05-98.
Date of creation: Jun 2005
Date of revision:
Other versions of this item:
- Masahiro Hori & Satoshi Shimizutani, 2005. "Price expectations and consumption under deflation: evidence from Japanese household survey data," International Economics and Economic Policy, Springer, vol. 2(2), pages 127-151, November.
- NEP-ALL-2005-06-27 (All new papers)
- NEP-CBA-2005-06-27 (Central Banking)
- NEP-MAC-2005-06-27 (Macroeconomics)
- NEP-SEA-2005-06-27 (South East Asia)
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