Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Richmond
Working Paper
Real Rates and Consumption Smoothing in a Low Interest Rate Environment: The Case of Japan
Jonathan Lecznar
Thomas A. Lubik
Abstract

We study the dynamics of consumption, the real interest rate, and measures of labor input in Japan over the period from 1985-2014. We identify structural breaks in macroeconomic aggregates during the 1990s and associate them with the zero interest rate policy pursued by the Bank of Japan and the surprise increase in the consumption tax rate in April 1997. Formal estimation using the Generalized Methods of Moments shows that the mid-1990s are characterized by breaks in the structural parameters governing household consumption and labor supply decisions. Specifically, following the tax hike and during the low nominal rate period, Japanese households became less risk averse and exhibited a higher degree of habit formation.


Download Full text
Cite this item
Jonathan Lecznar & Thomas A. Lubik, Real Rates and Consumption Smoothing in a Low Interest Rate Environment: The Case of Japan, Federal Reserve Bank of Richmond, Working Paper 17-8, 18 May 2017.
More from this series
JEL Classification:
Subject headings:
Keywords: Euler equation; GMM; nominal interest rate; labor supply
For corrections, contact Christian Pascasio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal