Wage-Price Dynamics and Structural Reforms in Japan

Author/Editor: Davide Porcellacchia
Publication Date: 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.
Series: Working Paper No. 16/20
Subject(s): Fiscal reforms | Japan | Wages | Prices | Labor markets | Corporate governance | Labor market friction | Liquidity | Monetary policy | Fiscal policy | Econometric models

Publication Date: February 10, 2016
ISBN/ISSN: 9781498316637/1018-5941 Format: Paper
Stock No: WPIEA2016020 Pages: 26
US$18.00 (Academic Rate:
US$18.00 )
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