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Consumer behavior in Japan and its structural change: Re-examination by sup-predictive test

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  • Masafumi Kozuka

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

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    Abstract

    Intertemporal elasticity of substitution (IES) is an important macroeconomic parameter that relates the real interest rate to consumption and thereby aggregate demand. In this paper, we estimate IES in Japan following Ogaki and Reinhart's two-good model. And given that Japanese economy stagnated over the last decade, we perform the test for a possible break in the IES. Our empirical investigation shows that structural shift of IES occurred in 1997:Q1 and that the IES became insignificant. The results show that the consumption expenditure became less elastic to the call rate, and suggests that the effect of monetary policy to consumption diminished.

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    Bibliographic Info

    Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 183.

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    Length: 25 pages
    Date of creation: May 2004
    Date of revision: Jan 2006
    Handle: RePEc:kob:dpaper:183

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    Keywords: Durable consumption goods; Non-durable consumption goods; Co-integration; Intertemporal and intratemporal elasticity of substitution; sup-predictive test;

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