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Consumer behavior in Japan and its structural change: Re-examination by sup-predictive test

Author

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  • Masafumi Kozuka

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

Intertemporal elasticity of substitution (IES) is an important macroeconomic parameter that relates the real interest rate to consumption and thereby aggregate demand. In this paper, we estimate IES in Japan following Ogaki and Reinhart's two-good model. And given that Japanese economy stagnated over the last decade, we perform the test for a possible break in the IES. Our empirical investigation shows that structural shift of IES occurred in 1997:Q1 and that the IES became insignificant. The results show that the consumption expenditure became less elastic to the call rate, and suggests that the effect of monetary policy to consumption diminished.

Suggested Citation

  • Masafumi Kozuka, 2004. "Consumer behavior in Japan and its structural change: Re-examination by sup-predictive test," Discussion Paper Series 183, Research Institute for Economics & Business Administration, Kobe University, revised Jan 2006.
  • Handle: RePEc:kob:dpaper:183
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    More about this item

    Keywords

    Durable consumption goods; Non-durable consumption goods; Co-integration; Intertemporal and intratemporal elasticity of substitution; sup-predictive test;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E29 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Other

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