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Understanding Japan's saving rate: the reconstruction hypothesis

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  • Lawrence J. Christiano

Abstract

This paper evaluates Hayashi's conjecture that Japan's postwar saving experience can be accounted for by the neoclassical model of economic growth as that country's efforts to reconstruct its capital stock that was severely damaged in World War II. I call this the reconstruction hypothesis. I take a simplified version of a standard neoclassical growth model that is in widespread use in macroeconomics and simulate its response to capital destruction. The saving rate path implied by the model differs significantly from the path taken by actual Japanese postwar saving data. I discuss several model modifications which would reconcile the reconstruction hypothesis with Japan's postwar saving experience. For the reconstruction hypothesis to be credible requires independent evidence on the empirical plausibility of the model modifications. It is left to future research to determine whether that evidence exists.

Suggested Citation

  • Lawrence J. Christiano, 1989. "Understanding Japan's saving rate: the reconstruction hypothesis," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 10-25.
  • Handle: RePEc:fip:fedmqr:y:1989:i:spr:p:10-25:n:v.13no.2
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    References listed on IDEAS

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    1. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
    2. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    3. Mirrlees, J. A. & Stern, N. H., 1972. "Fairly good plans," Journal of Economic Theory, Elsevier, vol. 4(2), pages 268-288, April.
    4. Lawrence J. Christiano, 1987. "Why is consumption less volatile than income?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-20.
    5. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    7. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
    8. repec:fth:harver:1435 is not listed on IDEAS
    9. Cochrane, John H, 1989. "The Sensitivity of Tests of the Intertemporal Allocation of Consumption to Near-Rational Alternatives," American Economic Review, American Economic Association, vol. 79(3), pages 319-337, June.
    10. Taylor, John B & Uhlig, Harald, 1990. "Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 1-17, January.
    11. Lawrence J. Christiano & Terry J. Fitzgerald, 1989. "The magnitude of the speculative motive for holding inventories in a real business cycle model," Discussion Paper / Institute for Empirical Macroeconomics 10, Federal Reserve Bank of Minneapolis.
    12. James M. Nason, 1988. "The equity premium and time-varying risk behavior," Finance and Economics Discussion Series 11, Board of Governors of the Federal Reserve System (U.S.).
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    Keywords

    Saving and investment ; Japan;

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