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Did the Credit Crunch in Japan Affect Household Welfare? An Augmented Euler Equation Approach Using Type 5 Tobit Model

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  • Yasuyuki Sawada

    (Faculty of Economics, University of Tokyo)

  • Kazumitsu Nawata

    (Graduate School of Economics, University of Tokyo)

  • Masako Ii

    (Graduate School of International Corporate Strategy, Hitotsubashi University)

  • Jeong-Joon Lee

    (Department of Economics Towson University)

Abstract

We investigate whether the credit crunch in Japan affected household welfare and the manner in which it did. We augment the theoretical framework of a consumption Euler equation with endogenous credit constraints and estimate it with household panel data for 1993-1999, generating several empirical findings. First, a small portion of the people faced credit constraints in Japan before and after the financial crisis in 1997. Accordingly, our results reject the standard consumption Euler equation. Second, the credit crunch affected household welfare negatively, albeit not seriously, after 1997. Our results corroborate that the credit crunch in Japan was supply-driven.

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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-498.

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Length: 43 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:tky:fseres:2007cf498

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  1. Fumio Hayashi, 1982. "The Effect of Liquidity Constraints on Consumption: Cross-Sectional Analysis," Discussion Papers 516, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Garcia, Rene & Lusardi, Annamaria & Ng, Serena, 1997. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 154-76, May.
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  20. repec:fth:pennfi:69 is not listed on IDEAS
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Cited by:
  1. Joe Chen & Yun Jeong Choi & Kohta Mori & Yasuyuki Sawada & Saki Sugano, 2012. "Socio‐Economic Studies On Suicide: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 271-306, 04.
  2. Joe Chen & Yun Jeong Choi & Yasuyuki Sawada, 2008. "How Is Suicide Different in Japan?," CIRJE F-Series CIRJE-F-557, CIRJE, Faculty of Economics, University of Tokyo.

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