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Price expectations and consumption under deflation: evidence from Japanese household survey data

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  • Masahiro Hori
  • Satoshi Shimizutani
Abstract
The Japanese economy has experienced price deflation since the mid-1990s. Despite the importance of overcoming deflation, there has been little recent research on price expectations in Japan. This paper takes advantage of an original and rich quarterly household-level data set from the "Kokumin Seikatsu Monitors" to estimate average price expectations, examine the factors that affect price expectations, and examine how changes in price expectations have affected household consumption. Our estimates indicate that average price expectations ranged from minus 0.2 to zero percent in 2001 and 2002. However, there was an increase to 1 percent in the first quarter of 2003, followed by a decline to 0.2 percent in the second quarter, and a steady increase toward 0.8 percent by the first quarter of 2004. Price expectations depend on current price movements and lagged expectations. A series of quantitative easing monetary policies were not very effective in changing the price expectations, since the policy announcements caused revision of price expectations only for small portion, i.e., 5-10% of people surveyed. The jump observed in the first quarter of 2003 was a reaction to the outbreak of the Iraq war. Our study also confirms that deflationary expectations discourage household consumption, mainly durable consumption, by delaying the timing of purchase, suggesting that the deflationary expectations should be upwardly revised to restore vital Japanese economy.
(This abstract was borrowed from another version of this item.)

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  • Masahiro Hori & Satoshi Shimizutani, 2005. "Price expectations and consumption under deflation: evidence from Japanese household survey data," International Economics and Economic Policy, Springer, vol. 2(2), pages 127-151, November.
    • Handle: RePEc:kap:iecepo:v:2:y:2005:i:2:p:127-151
    DOI: 10.1007/s10368-005-0030-4
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    1. Comment la consommation réagit-elle à la déflation ?
      by Martin Anota in D'un champ l'autre on 2015-03-03 03:30:23

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    1. Hori, Masahiro & 堀, 雅博 & Kawagoe, Masaaki, 2013. "Inflation Expectations Of Japanese Households: Micro Evidence From A Consumer Confidence Survey," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 54(1), pages 17-38, June.
    2. Davis, J. Scott, 2015. "The asymmetric effects of deflation on consumption spending: Evidence from the great depression," Economics Letters, Elsevier, vol. 130(C), pages 105-108.
    3. Michal Franta & Tomas Holub & Petr Kral & Ivana Kubicova & Katerina Smidkova & Borek Vasicek, 2014. "The Exchange Rate as an Instrument at Zero Interest Rates: The Case of the Czech Republic," Research and Policy Notes 2014/03, Czech National Bank.

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