Fumikazu Hida

(Deputy Director-General, Financial Services Agency)

Kenji Tanaka

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

Hisano Umei

(Official, General Affairs Division, Quality-of-Life Policy Bureau, Cabinet Office)

Koichiro Iwamoto

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

Hironori Shigihara

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

This paper describes the basic structure and multipliers of the 2008 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 long-run equilibrium. The use of the new techniques contributes toward the stabilization of the long-run behaviors in the model. Otherwise, the short-run properties have not largely changed from the previous versions.

The following are some of the multipliers 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. These characteristics of multipliers are not significantly different between 2006 and 2008 version. However, the effect of monetary policy don’t become evident as time passes, this is a small difference from previous one.