This paper explores whether habit formation in the representative agent’s preferences can explain two failures of the standard permanent income model: the sensitivity to lagged consumer sentiment, and to predictable changes in income. I show that in a habit formation model, the sensitivity of...

The Japanese economy has been hit hard by the slump in global demand for advanced manufacturing products such as cars, information technology, and machinery, which account for a larger share of production than in other G-7 economies. Most of the drop in Japan's exports was caused by a sharp...

Over the past decade, productivity-adjusted wages have grown at a slower pace in Japan than in other rich countries. This paper suggests that Japan''s dualities between regular and ""nonregular"" labor market contracts and the relatively inefficient services sector have exacerbated the negative...