The ESRI Short-Run Macroeconometric Model of the Japanese Economy (2006 version) - Basic Structure Multipliers and Economic Policy Analyses -(in Japanese)

This paper describes the basic structure and multipliers of the 2006 revised version of The ESRI Short-Run Macroeconometric Model of the Japanese Economy, which was first released in 1998 (Hori et al. [1998]). The model is basically a demand-oriented, traditional Keynesian-type model with an IS-LM-BP framework; however, it adopts recent developments in econometrics, such as co-integration, and error-correction to ensure long-run equilibrium. The use of these new techniques contributes toward the stabilization of the long-run behaviors of the model. The model was estimated on Japan's System of National Accounts (SNA) data, to which the chain-linking method has been applied since December 2004. In addition, annual and base-year revisions of the SNA were conducted in December 2005. In short, this is the newest model based on the chain-linked, revised SNA data. The following are some of the multipliers of our policy simulations. The peak of fiscal multiplier, i.e., the effect of government investments on GDP, is about 1.1 in Japan. The effect of income tax reduction is smaller due to its leak to household savings. Monetary policy takes some time before its effects become evident. These characteristics of multipliers are not significantly different from previous ones, partly because 1) most of the estimated parameters in behavioral equations do not significantly change in spite of the revision of the data, and 2) this is a short-run, and highly aggregated macroeconometric model. However, it should also be noted that a few important parameters, including the elasticity of users' cost of capital on the private fixed investments, have changed significantly and affected the size of some multipliers.