Achieving the Bank of Japan’s Inflation Target

Author/Editor:

Gee Hee Hong ; Rahul Anand ; Yaroslav Hul

Publication Date:

November 1, 2019

Electronic Access:

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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.

Series:

Working Paper No. 19/229

Subject:

English

Publication Date:

November 1, 2019

ISBN/ISSN:

9781513518350/1018-5941

Stock No:

WPIEA2019229

Format:

Paper

Pages:

37

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