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A More Realistic Endogenous Time Preference Model and the Slump in Japan

  • Taiji Harashima

    (Cabinet Office of the Japanese Government)

This paper presents a more realistic endogenous time preference model, incorporating the property that impatience decreases as consumption increases. The model overcomes a serious drawback of the existing model, which needs the assumption of increasing impatience. The new model is applied to the Japanese economy, which has been mired in a persistent slump since the early 1990s, and the hypothesis that a time preference rate shift is the main cause of the slump is explored. The estimated time preference rate clearly shows that an upward time preference shift of about 2% occurred in Japan.

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File URL: http://econwpa.repec.org/eps/mac/papers/0402/0402015.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0402015.

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Length: 35 pages
Date of creation: 06 Feb 2004
Date of revision: 09 Feb 2004
Handle: RePEc:wpa:wuwpma:0402015
Note: Type of Document - pdf; prepared on Windows Me; pages: 35 ; figures: 5 figures and a table included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Ronald McKinnon & Kenichi Ohno, 2001. "The Foreign Exchange Origins of Japan's Economic Slump and Low Interest Liquidity Trap," The World Economy, Wiley Blackwell, vol. 24(3), pages 279-315, 03.
  2. Maurice Obstfeld, 1989. "Intertemporal Dependence, Impatience, and Dynamics," NBER Working Papers 3028, National Bureau of Economic Research, Inc.
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  4. John Y. Campbell & Martin Lettau, 1999. "Dispersion and Volatility in Stock Returns: An Empirical Investigation," NBER Working Papers 7144, National Bureau of Economic Research, Inc.
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  8. Vogelsang, Timothy J., 1997. "Wald-Type Tests for Detecting Breaks in the Trend Function of a Dynamic Time Series," Econometric Theory, Cambridge University Press, vol. 13(06), pages 818-848, December.
  9. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  11. repec:cup:etheor:v:13:y:1997:i:6:p:818-49 is not listed on IDEAS
  12. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2001. "The Empirical Importance of Precautionary Saving," NBER Working Papers 8107, National Bureau of Economic Research, Inc.
  13. Lucas, Robert Jr. & Stokey, Nancy L., 1984. "Optimal growth with many consumers," Journal of Economic Theory, Elsevier, vol. 32(1), pages 139-171, February.
  14. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  15. John Heaton & Deborah Lucas, 2000. "Stock prices and fundamentals," Proceedings, Federal Reserve Bank of San Francisco, issue Apr.
  16. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
  17. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February.
  18. Shiller, Robert J & Kon-Ya, Fumiko & Tsutsui, Yoshiro, 1996. "Why Did the Nikkei Crash? Expanding the Scope of Expectations Data Collection," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 156-64, February.
  19. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
  20. Epstein, Larry G & Hynes, J Allan, 1983. "The Rate of Time Preference and Dynamic Economic Analysis," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 611-35, August.
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