The ESRI Short-Run Macroeconometric Model of the Japanese Economy: Basic Structure, Multipliers, and Economic Policy Analyses (2011version)

This paper describes the basic structure and multipliers of the 2010 revised version of The ESRI Short-Run Macroeconometric Model of the Japanese Economy, which was first released in 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 the new techniques contributes toward the stabilization of the long-run behaviors of the model. The short-run properties, on the other hand, have not changed significantly from the previous versions. The 2010 version has modified the form of production function from Hicks neutral to Harrod neutral to ensure long-run equilibrium as IMF MULTIMOD and FRB/GLOBAL do. The following are some of the multipliers of policy simulations. The fiscal multiplier, i.e., the effect of government investments on GDP, is 1.07 in the first year. The effect of income tax reduction is smaller due to its leak to household savings. 1% point rise of short-term interest rate reduces real GDP by 0.48% in the first year. These characteristics of multipliers are not significantly different from the 2008 version.