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Do Borrowing Constraints Matter? An Analysis of Why the Permanent Income Hypothesis Does Not Apply in Japan

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  • Miki Kohara
  • Charles Yuji Horioka

Abstract

We use micro data on young married households from the Japanese Panel Survey of Consumers in order to analyze the importance of borrowing constraints in Japan. We find (1) that 8 to 15 percent of young married Japanese households are borrowing-constrained, (2) that household assets and the husband%u2019s educational attainment are the most important determinants of whether or not a household is borrowing-constrained, and (3) that the Euler equation implication is rejected for both the full sample and for the subsample of unconstrained households. These results suggest that the life cycle/permanent income hypothesis does not apply in Japan and that the presence of borrowing constraints is not the main reason why it does not apply.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12330.

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Date of creation: Jun 2006
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Publication status: published as Kohara, Miki & Horioka, Charles Yuji, 2006. "Do borrowing constraints matter? An analysis of why the permanent income hypothesis does not apply in Japan," Japan and the World Economy, Elsevier, vol. 18(4), pages 358-377, December.
Handle: RePEc:nbr:nberwo:12330

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  1. Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 16-88, Wharton School Rodney L. White Center for Financial Research.
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  4. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  5. Fumio Hayashi, 1984. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," NBER Working Papers 1305, National Bureau of Economic Research, Inc.
  6. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 27(1), pages 73-98, February.
  7. repec:fth:pennfi:69 is not listed on IDEAS
  8. Midori Wakabayashi & Charles Yuji Horioka, 2005. "Borrowing Constraints and Consumption Behavior in Japan," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0640, Institute of Social and Economic Research, Osaka University.
  9. T. Jappelli & J-S Pischke & N.S. Souleles, 1995. "Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 95-19, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Horioka, Charles Yuji, 2006. "The causes of Japan's `lost decade': The role of household consumption," Japan and the World Economy, Elsevier, Elsevier, vol. 18(4), pages 378-400, December.
  11. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, Elsevier, vol. 35(4), pages 723-756, May.
  12. Ogawa, Kazuo, 1990. "Cyclical variations in liquidity-constrained consumers: Evidence from macro data in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 4(2), pages 173-193, June.
  13. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, Elsevier, vol. 10(3), pages 417-425.
  14. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 219-34, February.
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Cited by:
  1. Charles Yuji Horioka & Shizuko Sekita, 2009. "The Degree of Judicial Enforcement and Credit Markets: Evidence from Japanese Household Panel Data," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0764, Institute of Social and Economic Research, Osaka University.
  2. Kohei Kubota & Mototsugu Fukushige, 2009. "Rational Consumers," Discussion Papers in Economics and Business 09-15-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Jun 2011.
  3. Ana María Ibáñez & Andrés Moya, 2006. "The Impact of Intra-State Conflict on Economic Welfare and Consumption Smoothing: Empirical Evidence for the Displaced Population in Colombia," HiCN Working Papers 23, Households in Conflict Network.
  4. Ibáñez, Ana María & Moya, Andrés, 2010. "Vulnerability of Victims of Civil Conflicts: Empirical Evidence for the Displaced Population in Colombia," World Development, Elsevier, Elsevier, vol. 38(4), pages 647-663, April.
  5. Charles Yuji Horioka & Shizuka Sekita, 2009. "Are Fast Court Proceedings Good or Bad ? : Evidence from Japanese Household Panel Data," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 0916, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  6. Kurita, Takamitsu, 2010. "Co-breaking, cointegration, and weak exogeneity: Modelling aggregate consumption in Japan," Economic Modelling, Elsevier, Elsevier, vol. 27(2), pages 574-584, March.
  7. Hiroshi Morita, 2012. "Expansionary Effect of an Anticipated Fiscal Policy on Consumption in Japan," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd11-219, Institute of Economic Research, Hitotsubashi University.

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