Empirical Analyses on Macroeconomic Effects of Uncertainties in Japan

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This research project aims at empirically analyzing macroeconomic effects of such uncertainties as unemployment or inflation, which the Japanese has been concerned about. Our focus is in education demand, physical investment, household consumption, monetary policy and rates of interest, which might be influenced by the uncertainties.1. Chapter 1. Liquidity Constraint in Education Demand : Using the Panel Data on Households, we estimated the functions for education expenditure. Our empirical results are not consistent with human capital investment without liquidity constraints, but with either human capital investment with liquidity constraints or education demand as consumption.2. Chapter 2. Investment under Uncertainty: Using the Balance-Sheet Data of Business Enterprises, we estimated the investment functions, among the explanatory variables which there are three 'uncertainty' variables concerning market forecasts, price-earning ratio and real turnovers. The latter two uncertainty va … More riables are negatively significant, which suggests that it is not uncertainty of demand but one of supply for firms to take into account in their investment decisions.3. Chapter 3 Employment Status and Consumption by Households: In a dynamic general equilibrium model, we address precautionary saving motives for possible unemployment. We numerically measure the cost of inflation, in that households cannot smooth consumptions in face of inflation and deteriorated values of nominal savings. In a case of monetary policy during the 1990s, the Bank of Japan causes 0.334% of GDP, the magnitude of which would be even increased by unemployment risk.4. Chapter 4. Monetary Targeting under Discretion: We address the Goodhart's Law that monetary targeting of central banks could cause money demand function to be less stable. In a dynamic general equilibrium model, we consider a regime switching monetary policy rule which depends on monetary targeting following a Markov process. Our model succeeds in generating variability of money velocity in Japan.5. Cher5. Economic Fluctuations and Long-term Interest Rate in the G7 Countries: We apply the Lucas tree model to the Japanese economy, in comparison with other G7 countries. It turns out that why the Japanese long-term interest rates have been lower than other countries lies in both low level of expected inflation rates and negative inflation premium due to larger covariance between consumption growth and inflation.6. Less