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Did the Credit Crunch in Japan Affect Household Welfare? An Augmented Euler Equation Approach Using Type 5 Tobit Model

  • Yasuyuki Sawada

    (Faculty of Economics, University of Tokyo)

  • Kazumitsu Nawata

    (Graduate School of Economics, University of Tokyo)

  • Masako Ii

    (Graduate School of International Corporate Strategy, Hitotsubashi University)

  • Jeong-Joon Lee

    (Department of Economics Towson University)

We investigate whether the credit crunch in Japan affected household welfare and the manner in which it did. We augment the theoretical framework of a consumption Euler equation with endogenous credit constraints and estimate it with household panel data for 1993-1999, generating several empirical findings. First, a small portion of the people faced credit constraints in Japan before and after the financial crisis in 1997. Accordingly, our results reject the standard consumption Euler equation. Second, the credit crunch affected household welfare negatively, albeit not seriously, after 1997. Our results corroborate that the credit crunch in Japan was supply-driven.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2007/2007cf498.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-498.

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Length: 43 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:tky:fseres:2007cf498
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  1. Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 16-88, Wharton School Rodney L. White Center for Financial Research.
  2. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
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  15. Xiaoqiang Hu & Fabio Schiantarelli, 1998. "Investment And Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 466-479, August.
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