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

Yasuyuki Sawada (), Kazumitsu Nawata, Masako Ii and Jeong-Joon Lee ()
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Kazumitsu Nawata: Graduate School of Economics, University of Tokyo
Masako Ii: Graduate School of International Corporate Strategy, Hitotsubashi University

No CIRJE-F-498, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: 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.

New Economics Papers: this item is included in nep-mac
Date: 2007-05
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