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Co-breaking, cointegration, and weak exogeneity: Modelling aggregate consumption in Japan

  • Kurita, Takamitsu
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    This paper aims to estimate a parsimonious data-congruent model for aggregate real consumption in Japan using quarterly data over the past two decades. Testing co-breaking, cointegration and weak exogeneity plays an important role in pursuing the model reduction. It is demonstrated that co-breaking removes a deterministic shift caused by the collapse of the bubble economy in Japan in the early 1990s. Multivariate cointegration analysis then reveals that inflation plays a critical role in accounting for the long-run behaviour of the aggregate consumption. Further analysis finds that inflation and aggregate income are weakly exogenous with respect to a set of parameters of interest. Finally, a parsimonious data-congruent model for the aggregate consumption is estimated conditional on the set of weakly exogenous variables.

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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 27 (2010)
    Issue (Month): 2 (March)
    Pages: 574-584

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    Handle: RePEc:eee:ecmode:v:27:y:2010:i:2:p:574-584
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