Achieving the Bank of Japan’s Inflation Target

By Gee Hee Hong, Rahul Anand, Yaroslav Hul

November 1, 2019

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Gee Hee Hong, Rahul Anand, and Yaroslav Hul. Achieving the Bank of Japan’s Inflation Target, (USA: International Monetary Fund, 2019) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The Bank of Japan has introduced various unconventional monetary policy tools since the launch of Abenomics in 2013, to achieve the price stability target of 2 percent inflation. In this paper, a forward-looking open-economy general equilibrium model with endogenously determined policy credibility and an effective lower bound is developed for forecasting and policy analysis (FPAS) for Japan. In the model’s baseline scenario, the likelihood of the Bank of Japan reaching its 2 percent inflation target over the medium term is below 40 percent, assuming the absence of other policy reactions aside from monetary policy. The likelihood of achieving the inflation target is even lower under alternative risk scenarios. A positive shock to central bank credibility increases this likelihood, and would require less accommodative macroeconomic policies.

Subject: Banking, Central bank policy rate, Financial services, Inflation, Inflation targeting, Interest rate floor, Monetary policy, Output gap, Prices, Production

Keywords: BoJ staff baseline, Central bank policy rate, Fan charts, Forecasting, FPAS, Headline CPI inflation, Inflation, Inflation expectation, Inflation projection, Inflation targeting, Interest rate floor, One percent core inflation cost-push shock, Output gap, Output gap, WP, Zero lower bound

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/229
Stock No:

WPIEA2019229
ISBN:

9781513518350
ISSN:

1018-5941

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