Wage-Price Dynamics and Structural Reforms in Japan

February 10, 2016

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Format: Chicago

Davide Porcellacchia. Wage-Price Dynamics and Structural Reforms in Japan, (USA: International Monetary Fund, 2016) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Structural reforms in the liquidity trap need not be deflationary. This paper develops a simple framework to study the role that key characteristics of Japan’s labor and product markets—labor-market duality and weak corporate governance—play in generating unfavorable wage-price dynamics. The model allows a discussion of whether and in what form structural reforms may contribute to Japan’s short-run goal of reflating the economy. It finds that boosting inflation with structural reforms implies an unusual trade-off with employment, that is an inverted Phillips curve. Simultaneous implementation of labor-market and product-market reforms is most effective in terms of reflating the economy.

Subject: Asset and liability management, Financial services, Inflation, Labor, Labor markets, Liquidity, Prices, Zero lower bound

Keywords: Abenomics, Cash holding, Corporate governance, Global, Inflation, Japan, Labor market, Labor markets, Labor-market duality, Liquidity, Liquidity trap, Market power, Nominal interest rate, Phillips curve, Price level, Real wage, Single open-ended contract, Structural reforms, Wage-price dynamics, WP, Zero lower bound

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/020
Stock No:

WPIEA2016020
ISBN:

9781498316637
ISSN:

1018-5941

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