Reflating Japan: Time to Get Unconventional?
August 2, 2016
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Summary
Japan has ambitious 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. We propose that countercyclical measures be embedded in long-run frameworks that anchor expectations for inflation and public debt. In addition, we argue for an incomes policy to assist reflation. Model simulations suggest that, combined, these proposals would make headway towards the goals, with, on balance, a better chance of success than the more unconventional policy alternatives proposed by Krugman, Svensson, and Turner from a risk-return perspective.
Subject: Deflation, Fiscal policy, Inflation, Inflation targeting, Labor, Labor markets, Monetary policy, Prices
Keywords: BoJ inflation target, BoJ's inflation target, Deflation, dynamics amount, fiscal policy, Global, incomes policy, Inflation, inflation expectation, inflation guideline, inflation target, Inflation targeting, Japan, Labor markets, monetary policy, output gap, private sector, structural reforms, wage growth, wage inflation guideline, wage inflation target, wage pressure, wage-price dynamics, wage-push inflation, WP
Pages:
46
Volume:
2016
DOI:
Issue:
157
Series:
Working Paper No. 2016/157
Stock No:
WPIEA2016157
ISBN:
9781475523140
ISSN:
1018-5941
