Title
Understanding Output and Price Dynamics in Japan: Why Have Japan's Price Movements Been Relatively Stable Since the 1990s?
Abstract
Since the beginning of the 1990s, Japanese inflation has been relatively stable with slight declines, while output has remained volatile with
a prolonged stagnation. This paper attempts to explore possible explanations for these macroeconomic facts based on the aggregate demand and supply
framework. Specifically, applying a vector autoregressive framework that allows for correlations between structural disturbances, it examines two broad
questions in a unified way: (i) whether the slope of the short-run aggregate supply curve became significantly flattened and/or (ii) whether structural
demand and supply shocks are more strongly positive correlated. Our results suggest that positive correlation between structural demand and supply
shocks has become stronger since the 1990s, while there is less evidence that the short-run aggregate supply curve has been flattened. We argue
that shifts in aggregate demand and supply curves in the same direction lead to larger, permanent effects on output and to limited effects on prices
in Japan.
Masahiko SHIBAMOTO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501
Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059
Ryuzo MIYAO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501
Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059