Keiko Murata

(Senior Research Fellow, Economic and Social Research Institute, Cabinet Office)

Tatsuo Saito

(Research Officer, Economic and Social Research Institute, Cabinet Office)

Takeshi Tanabe

(Research Officer, Economic and Social Research Institute, Cabinet Office)

Kouichirou Iwamoto

(Research Fellow, Institute for Research in Contemporary Political and Economic Affairs, Waseda University)

    This paper describes the basic structure and multipliers of the 2005 revised version of The ESRI Short-Run Macroeconometric Model of the Japanese Economy, which was first released in 1998 (Hori et al. [1998]).
    The model is basically a demand-oriented, traditional Keynesian-type model with an IS-LM-BP framework; however, it adopts recent developments in econometrics, such as co-integration, and error-correction to ensure a long-run equilibrium. Although the use of the new techniques stabilizes the long-run behaviors of the model, the short-run properties have not largely changed from the previous versions.
    The chain-linking method has been applied to Japan's System of National Accounts since last December. This is the first model based on the new series.
    The multipliers below represent some of our policy simulations. The peak of fiscal multiplier, i.e., the effect of government investments on GDP, is about 1.1 in Japan. The effect of income tax reduction is smaller due to its leak to household savings. Monetary policy takes some time before its effects become evident. The switch to chain-type GDP does not really affect these multipliers. This is partly because the estimated parameters in behavioral equations do not significantly change due to the revision of the data.