Cointegration, government spending and private consumption: Evidence from Japan

Tsung Wu Ho*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

Assuming a CRRA preference, this paper shows that there is a cointegration restriction implied by the intra-temporal first-order condition in the consumption function. This restriction predicts a cointegrated system of government consumption, private consumption, and their relative price. Our analysis indicates that, first, Johansen's VECM confirms the theoretical prediction that is supported by the data of Japan; moreover, Bierens' (1997) nonparametric estimator severely contradicts with the theoretical model and fits the data poorly; second Japanese people have increasing willingness to rearrange their consumption over time. Besides, the intratemporal relationship between private and government consumption remains relatively stable over time.

Original languageEnglish
Pages (from-to)162-174
Number of pages13
JournalJapanese Economic Review
Volume55
Issue number2
DOIs
Publication statusPublished - 2004 Jun
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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