Capital Gains in Japan: Their Magnitude and Impact on Consumption

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This paper estimates the magnitude of net capital gains on household wealth in Japan and then conducts an econometric analysis of their impact on consumption using national accounts data for the 1955-93 period. It finds that net capital gains on household wealth have been sizeable albeit volatile in Japan during this period and that their impact on consumption has been substantial especially during the late 1980s and early 1990s. The econometric analysis is one of the first cointegration analyses of Japanese consumption behavior and finds strong support for the life cycle/permanent income hypothesis. Copyright 1996 by Royal Economic Society.