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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 & Edward C. Prescott, 2002. "Data Appendix to The 1990s in Japan: A Lost Decade," Technical Appendices hayashi02, Review of Economic Dynamics.
  2. Fumio Hayashi & Edward C. Prescott, 2000. "The 1990s in Japan: a lost decade," Working Papers 607, Federal Reserve Bank of Minneapolis.
  3. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September.
  4. Masahiro Hori & Satoshi Shimizutani, 2006. "Did Japanese consumers become more prudent during 1998-1999? Evidence from household-level data," International Economic Journal, Taylor & Francis Journals, vol. 20(2), pages 197-209.
  5. Xiaoqiang Hu & Fabio Schiantarelli, 1998. "Investment And Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 466-479, August.
  6. Keiichi Hori & Makoto Saito & Koichi Ando, 2006. "What Caused Fixed Investment To Stagnate During The 1990s In Japan? Evidence From Panel Data Of Listed Companies," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 283-306.
  7. Nawata, Kazumitsu, 2004. "Estimation of the female labor supply models by Heckman’s two-step estimator and the maximum likelihood estimator," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 64(3), pages 385-392.
  8. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  9. Motonishi, Taizo & Yoshikawa, Hiroshi, 1999. "Causes of the Long Stagnation of Japan during the 1990s: Financial or Real?," Journal of the Japanese and International Economies, Elsevier, vol. 13(3), pages 181-200, September.
  10. Sydney Ludvigson & Christina H. Paxson, 1997. "Approximation bias in linearized Euler equations," Research Paper 9712, Federal Reserve Bank of New York.
  11. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, September.
  12. 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.
  13. Eswaran, Mukesh & Kotwal, Ashok, 1989. "Credit as insurance in agrarian economies," Journal of Development Economics, Elsevier, vol. 31(1), pages 37-53, July.
  14. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  15. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  16. René Garcia & Annamaria Lusardi & Serena Ng, 1995. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," CIRANO Working Papers 95s-09, CIRANO.
  17. Hosono, Kaoru, 2006. "The transmission mechanism of monetary policy in Japan: Evidence from banks' balance sheets," Journal of the Japanese and International Economies, Elsevier, vol. 20(3), pages 380-405, September.
  18. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  19. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. 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.
  2. Yasuyuki SAWADA & Fauziah ZEN, 2014. "Disaster Management in ASEAN," Working Papers DP-2014-03, Economic Research Institute for ASEAN and East Asia (ERIA).

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