Abstract ：
This paper investigates the dynamics of oil consumption, oil price, and economic activity during the period from 1986 to 2008 in Japan. In the first step, we employ residual-based tests for cointegration with a structural change and find a stable relationship among these economic variables. Moreover, we confirm that a structural change occurred after the collapse of the bubble economy. In the second step, we find that before and after this collapse, the price elasticity of oil demand decreased approximately 0.1 and the income elasticity of oil demand decreased approximately 0.4. In the third step, we use the lag augmented-vector autoregression method, finding that oil consumption does not Granger cause economic growth before the collapse. However, oil consumption Granger causes economic growth from after it. These empirical results have implications for the environmental and economic problems that Japan will face in the future.

Keywords : Oil consumption; Oil price; Economic activities; Structural change; LA-VAR
JEL classification: C22; Q43