impacts of wealth variables on consumption by types of commodities as well as total consumption in the recent business cycles. Section 7 gives concluding remarks.

### 2. Role of Wealth in Consumers' Theories

It seems to be unanimous among economists that LCY-PIH is the most celebrated theory of consumers that has solid micro foundations. Combined with the rational expectations hypothesis, it yielded a lot of interesting testable propositions, such as intertemporal Euler equations. The concept of wealth in the LCY-PIH is quite comprehensive. It is the lifetime resources available to the households. In other words it includes not only financial and tangible assets but also intangible human wealth: a present value of lifetime labor earnings. The total wealth thus defined is consumed away during the lifetime in such a pattern that the lifetime utility may be maximized.

However empirical evidence is not necessarily favorable to the LCY-PIH. This is due to two factors. One is a lack of treatment for bequest in the pure LCY-PIH. When households plan to leave bequest in the future, they may have in mind the explicit composition of bequest beforehand. In Japan a large proportion of bequest takes the form of real assets such as land or houses, both of which are quite illiquid. If the household plans a lifetime consumption pattern with the asset composition of bequest explicitly taken into consideration, then the wealth effects on consumption will be different across the type of assets. No matter how large the wealth is for the household, the effect of wealth on consumption will be nil if the household wealth is exclusively composed of illiquid tangible assets and the households are going to leave most of them to their descendants.

Another factor is the existence of liquidity constraints facing the households. The crucial assumption underlying the LCY-PIH is the perfect capital market where households can lend and borrow without any frictions at a given interest rate. However, when this assumption is violated, consumption becomes more sensitive to the current income and liquid assets. This is because the liquidity-constrained households cannot borrow indefinitely at the current interest rate to maintain the optimal consumption level determined from the viewpoint of lifetime utility maximization, and hence their consumption is bound by their current income and liquid asset.

Two factors discussed above, in particular the latter, suggest that liquid asset is a more appropriate wealth variable directly linked with consumption spending. Starting from Tobin(1951), there have been a lot of empirical evidence accumulated for the active role of liquid assets in consumption function and this has been often interpreted as the existence of imperfection in the capital market accessible to the households.

In order to incorporate these two opposing hypotheses on the consumers' behavior into our empirical work, it is important to break down the assets into several categories and examine the effects of each type of wealth on consumption. We consider the following six cases each of which corresponds to a choice of different types of wealth as explanatory variables in consumption functions.