Wage-Price Dynamics and Structural Reforms in Japan
February 10, 2016
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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
Pages:
26
Volume:
2016
DOI:
Issue:
020
Series:
Working Paper No. 2016/020
Stock No:
WPIEA2016020
ISBN:
9781498316637
ISSN:
1018-5941
