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Why did Japan's household savings rate fall in the 1990s?

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This study investigates empirically why Japan's household savings rate fell in the 1990s. We constructed an economic model consisting of two types of household: unconstrained life cycle households and liquidity-constrained households. Unconstrained households generally save, but liquidity-constrained households consume all of their disposable income. We found that the proportion of liquidity-constrained households increased sharply in the late 1990s, which led to a decline in Japan's household savings rate. Our simulation analysis demonstrates that if the proportion of liquidity-constrained households in the 1990s had stayed at the level as that of the late 1980s, the household savings rate would have increased by four% points in 2001 and 2002.

Document Type: Research Article


Affiliations: Institute of Social and Economic Research, Osaka University, Ibaraki, Osaka 567-0047, Japan

Publication date: October 1, 2007

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