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Why Did Japan's Household Savings Rate Fall in the 1990s?

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  • Kazuo Ogawa

Abstract

This paper investigates empirically why Japan's household savings rate fell in the 1990s. We constructed an economic model consisting of two types of household: unconstrained life-cycle households and liquidity-constrained households. Unconstrained households generally save, but liquidity-constrained households consume all of their disposable income. We found that the proportion of liquidity-constrained households increased sharply in the late 1990s, which led to a decline in Japan's household savings rate. Our simulation analysis demonstrated that if the proportion of liquidity-constrained households in the 1990s had stayed at the level as that of the late 1980s, the household savings rate would have increased by four percent points in 2001 and 2002.

Suggested Citation

  • Kazuo Ogawa, 2005. "Why Did Japan's Household Savings Rate Fall in the 1990s?," ISER Discussion Paper 0632, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0632
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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2005/DP0632.pdf
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    1. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
    2. 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.
    3. repec:fth:harver:1435 is not listed on IDEAS
    4. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
    5. Horioka, Charles Yuji & Watanabe, Wako, 1997. "Why Do People Save? A Micro-Analysis of Motives for Household Saving in Japan," Economic Journal, Royal Economic Society, vol. 107(442), pages 537-552, May.
    6. Yih-Luan Chyi & Chao-Hsi Huang, 1997. "An empirical study of the 'rule of thumb' consumption model in five East Asian countries," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1271-1282.
    7. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
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    Cited by:

    1. Charles Yuji Horioka, 2021. "Is the selfish life-cycle model more applicable in Japan and, if so, why? A literature survey," Review of Economics of the Household, Springer, vol. 19(1), pages 157-187, March.
    2. Yamada, Tomoaki, 2012. "Income risk, macroeconomic and demographic change, and economic inequality in Japan," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 63-84.
    3. Charles Yuji Horioka, 2020. "Does the Selfish Life-Cycle Model Apply in the Case of Japan?," Discussion Paper Series DP2020-14, Research Institute for Economics & Business Administration, Kobe University.

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