Reflating Japan: Time to Get Unconventional?
IMF Working Papers, August 2, 2016
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Bibliographic details
- Authors: Elif C Arbatli Saxegaard, Dennis P Botman, Kevin Clinton, Pietro Cova, Vitor Gaspar, Zoltan Jakab, Douglas Laxton, Constant A Lonkeng Ngouana, Joannes Mongardini, Hou Wang
- Published: August 2, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475523140.001
Summary and stated goals
- Japan's stated economic goals: 3 percent nominal growth; 2 percent inflation; and a primary budget surplus.
- Abenomics has employed the three arrows of monetary, fiscal and structural policies, but the goals remain out of reach.
Proposed policy framework
- Embed countercyclical measures in long-run frameworks that anchor expectations for inflation and public debt.
- Implement an incomes policy to assist reflation.
Model simulations and comparative assessment
- Model simulations suggest that the combined proposals (countercyclical measures within long-run frameworks + incomes policy) would make headway towards the goals.
- From a risk-return perspective, the combined proposals offer, on balance, a better chance of success than the more unconventional policy alternatives proposed by Krugman, Svensson, and Turner.
Key themes and emphases
- Focus areas: deflation, fiscal policy, inflation, inflation targeting, labor and labor markets, monetary policy, prices.
- Keywords emphasized by the authors include: BoJ inflation target; incomes policy; inflation expectation; inflation guideline; wage inflation guideline; wage inflation target; wage-price dynamics; wage-push inflation; structural reforms; wage growth; output gap; private sector.
Policy implications and recommendations
- Anchor inflation and public debt expectations through long-run frameworks that incorporate countercyclical policy elements.
- Complement macro frameworks with an incomes policy to help achieve reflationary objectives.
- Consider the risk-return trade-offs of highly unconventional alternatives versus a combined approach of anchored frameworks and incomes policy.
Source: IMF Working Paper “Reflating Japan: Time to Get Unconventional?”, authors Elif C Arbatli Saxegaard et al., August 2, 2016.
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