Wage-Price Dynamics and Structural Reforms in Japan

Author/Editor:

Davide Porcellacchia

Publication Date:

February 10, 2016

Electronic Access:

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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.

Series:

Working Paper No. 2016/020

Subject:

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

English

Publication Date:

February 10, 2016

ISBN/ISSN:

9781498316637/1018-5941

Stock No:

WPIEA2016020

Pages:

26

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