Is the Life Cycle Model or Ono’s Model Most Suitable for the Japanese? Analysis by Time-Series Data and Surveys of Lottery Purchase and Large Prizewinners

The existence of persistent unemployment has been hotly debated by neoclassical and Keynesian economists. Neoclassical theory denies the existence of persistent unemployment, instead only acknowledging temporary unemployment as part of the business cycle. Keynesians, however, strongly insist on the existence of persistent unemployment, despite the fact that adequate microeconomic foundations have not yet been provided for it. In an attempt to compensate for this deficiency in the economic literature, Ono (2001) proposed a micro foundation for such unemployment using the standard money-in-utility-function (MIUF) model. The MIUF model has been empirically tested by many economists; for example, Poterba and Rotemberg (1987) and Holman (1998) found some evidence supporting the MIUF model. However, Ono (2001) has also been criticized because insatiability of liquidity or wealth (hereafter “the Ono hypothesis”) is a necessary condition of the model. This assumption of insatiability has rarely been supported empirically, with one exception, namely Ono et al. (2004) (Ono et al. (1998) is the early version of this article). Ono et al. (2004) performed two estimations. The first was a parametric estimation employing time-series data, while the second provided a nonparametric estimation using cross-sectional data on individuals. Ono et al. (2004) found that the hypothesis of the insatiability of money or wealth was supported in the case of Japan.