This paper examines the Consumption-based Capital Asset Pricing Model (C-CAPM) allowing land assets to enter directly into the instantaneous utility function, in order to identify deep parameters of a representative agent’s preference in GMM estimation of Euler equations. A sup-predictive test is used to verify the stability of deep parameters. This model permits the identification of deep parameters in simultaneous estimation of Euler equations in stocks and land.

This study identifies exogenous fluctuations (i.e., shocks) in oil prices and examines their causal effects on macroeconomic variables in Japan. Following a recent line of research that identifies exogenous changes in oil prices (Kilian, 2009), we decompose fluctuations in real prices into crude oil supply shocks, shocks to the global demand for commodities, and demand shocks to the crude oil market. This study provides three main findings. First, an exogenous change in oil prices on the supply side decreases GDP, consumption, investment, and wages. Second, an exogenous change in oil prices on the demand side increases GDP, consumption, investment, and wages. Third, shocks that cause an increase in oil prices increase aggregate price levels, regardless of whether they originate on the supply or demand side. We provide evidence counter to the conventional wisdom that an increase in oil prices always hampers the Japanese economy.