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Policy reform and optimal inflation rate for Japan in computable OLG economy

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  • Shimasawa, Manabu
  • Sadahiro, Akira
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    Abstract

    We build a computable OLG model with monetary growth to calculate the optimal level of inflation rate for Japan, and to study policy reforms make any quantitative impacts on it. Four main results were obtained: (i) the optimal inflation rate for Japan is calculated around 1.0%; (ii) the calculated underlying inflation rate is about 9% under the present Japanese economic and fiscal situation; (iii) to prevent high inflation, fiscal reconstruction needs to be implemented; and (iv) if fundamental fiscal reform is conducted, the optimal inflation rate might be achieved. These results are very robust to calibration.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 26 (2009)
    Issue (Month): 2 (March)
    Pages: 379-384

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    Handle: RePEc:eee:ecmode:v:26:y:2009:i:2:p:379-384

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Money-in-the-utility Overlapping generations Calibration Optimal inflation rate Fiscal reform;

    References

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    1. Casey B. Mulligan & Xavier X. Sala-i-Martin, 1997. "The Optimum Quantity of Money: Theory and Evidence," NBER Working Papers 5954, National Bureau of Economic Research, Inc.
    2. A. Javier Hamann, 1992. "The Optimal Rate of Money Creation in an Overlapping Generations Model," IMF Working Papers 92/37, International Monetary Fund.
    3. Claudio Morana, 2005. "The Japanese deflation: has it had real effects? Could it have been avoided?," Applied Economics, Taylor & Francis Journals, vol. 37(12), pages 1337-1352.
    4. Bruce D. Smith, 2002. "Monetary Policy, Banking Crises, and the Friedman Rule," American Economic Review, American Economic Association, vol. 92(2), pages 128-134, May.
    5. Weiss, Laurence M, 1980. "The Effects of Money Supply on Economic Welfare in the Steady State," Econometrica, Econometric Society, vol. 48(3), pages 565-76, April.
    6. Shigenori Shiratsuka, 1999. "Measurement errors in Japanese Consumer Price Index," Working Paper Series WP-99-2, Federal Reserve Bank of Chicago.
    7. Braun, R. Anton, 1994. "How large is the optimal inflation tax?," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 201-214, October.
    8. Freeman, Scott, 1993. "Resolving Differences over the Optimal Quantity of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(4), pages 801-11, November.
    9. Weil, Philippe, 1991. "Is Money Net Wealth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 37-53, February.
    10. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
    11. Shiratsuka, Shigenori, 1999. "Measurement Errors in the Japanese Consumer Price Index," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 69-102, December.
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