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A numerical analysis of the monetary aspects of the Japanese economy: the cash-in-advance approach

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  • Shigeyuki Hamori
  • Shin-Ichi Kitasaka

Abstract

This paper analyses the monetary aspects of the Japanese economy based on the cash-in-advance (CIA) model. The Svensson (1985) model and the Lucas and Stokey (1987) model are examined by calibration. The Euler equations obtained from the representative agent's optimization behaviour stand for a non-linear relationship including some random variables. We approximate a generating process of exogenous variables using the quadrature-based method developed by Tauchen and Hussey (1991) and apply the numerical method proposed in Hodrick et al. (1991) to the results. Several moments of monetary variables are calculated to satisfy the theoretical consistency of the CIA model. Comparing the theoretical values with actual sample statistics, we examine the validity of the CIA model in Japan. The numerical results show that theoretical moments generated by the Lucas and Stokey model are consistent with sample moments in the 1980s.

Suggested Citation

  • Shigeyuki Hamori & Shin-Ichi Kitasaka, 1998. "A numerical analysis of the monetary aspects of the Japanese economy: the cash-in-advance approach," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 51-59.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:1:p:51-59
    DOI: 10.1080/096031098333249
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    References listed on IDEAS

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    1. Hamori, Shigeyuki, 1992. "On the structural stability of preference parameters obtained from Japanese financial market data," Economics Letters, Elsevier, vol. 40(4), pages 459-464, December.
    2. Hodrick, Robert J & Kocherlakota, Narayana R & Lucas, Deborah, 1991. "The Variability of Velocity in Cash-in-Advance Models," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 358-384, April.
    3. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
    4. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
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    6. Hamori, Shigeyuki, 1992. "Test of C-CAPM for Japan: 1980-1988," Economics Letters, Elsevier, vol. 38(1), pages 67-72, January.
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    Cited by:

    1. Nadenichek, Jon, 2000. "The Japan-US trade imbalance: a real business cycle perspective," Japan and the World Economy, Elsevier, vol. 12(3), pages 255-271, September.
    2. Hatemi-J, Abdulnasser, 2002. "Export performance and economic growth nexus in Japan: a bootstrap approach," Japan and the World Economy, Elsevier, vol. 14(1), pages 25-33, January.

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