Exploiting the panel data structure of the Family Income and Expenditure Survey, compiled from 1989 to 1997 by the Japanese Bureau of Statistics, this paper explores how effectively idiosyncratic shocks are shared among consumers in Japan. Tests are conducted for the total consumption, together with each category of consumption expenditures. Exploring possible theoretical interpretations of estimated parameters, this paper shows that the full insurance hypothesis is rejected statistically, but that a large fraction of idiosyncratic shocks are still insured in markets or other mechanisms. It also points out that the extent of risk-sharing among households in Japan is fairly similar to that in the US.
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