ESRI Discussion Paper Series No.259
The ESRI Short-Run Macroeconometric Model of the Japanese Economy (2011 version)
- Basic Structure Multipliers and Economic Policy Analyses -

Takashi Sakuma
(Executive Research Fellow, Economic and Social Research Institute, Cabinet Office)
Minoru Masujima
(Senior Research Fellow, Economic and Social Research Institute, Cabinet Office)
Saeko Maeda
(Special Fellow, Economic and Social Research Institute, Cabinet Office)
Kohei Fukawa
(Research Officer, Economic and Social Research Institute, Cabinet Office)
Koichiro Iwamoto
(Visiting Fellow, Economic and Social Research Institute, Cabinet Office)

The full text is written in Japanese.

Abstract

This paper describes the basic structure and multipliers of the 2011 revised version of The ESRI Short-Run Macroeconometric Model of the Japanese Economy, which was first released in 1998.

The model is basically a demand-oriented, traditional Keynesian-type model with 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 of the model.

The 2011 version has modified the form of production function from Hicks neutral to Harrod neutral to ensure long-run equilibrium as IMF MULTIMOD and FRB/GLOBAL do.

The following are some of the multipliers of policy simulations. The fiscal multiplier, i.e., the effect of government investments on GDP, is 1.07 in the first year. The effect of income tax reduction is smaller due to its leak to household savings. 1% point rise of short-term interest rate reduces real GDP by 0.48% in the first year. These characteristics of multipliers are not significantly different from the 2008 version.

Effects of Macroeconomic Policies in Japan on Real GDP (% deviation)
  Effect of Government
Investments
(1% of Real GDP)
Effect of Income-Tax
Reduction
(1% of Nominal GDP)
Effects of Short-term
Interest Rate Rise
(1% point)
1st Year 1.07 0.22 -0.48
2nd Year 1.14 0.64 -0.69
3rd Year 0.95 0.65 -1.01
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