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Optimal inflation for Japan's economy

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  • Fuchi, Hitoshi
  • Oda, Nobuyuki
  • Ugai, Hiroshi
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    Abstract

    This paper quantitatively evaluates a steady-state inflation rate that is considered optimal from the perspective of social welfare, using a model describing the Japanese economy. Specifically, we build a DSGE model capable of evaluating the effects, on social welfare, of points concerning the costs and benefits that accompany inflation: the opportunity cost of holding money, the zero lower bound on nominal interest rates, price stickiness and the downward wage rigidity. Building on this, we conduct stochastic simulations that calculate the social loss with different steady-state inflation rates, and investigate the optimal inflation rate. We also analyze the range of the optimal inflation rate when we change the model settings. J. Japanese Int. Economies 22 (4) (2008) 439-475.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

    Volume (Year): 22 (2008)
    Issue (Month): 4 (December)
    Pages: 439-475

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    Handle: RePEc:eee:jjieco:v:22:y:2008:i:4:p:439-475

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    Web page: http://www.elsevier.com/locate/inca/622903

    Related research

    Keywords: Inflation Social loss Monetary policy Zero lower bound on nominal interest rates Downward wage rigidity Price stickiness;

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    Cited by:
    1. Vadim Khramov & John Ridings Lee, 2013. "The Economic Performance Index (EPI): an Intuitive Indicator for Assessing a Country's Economic Performance Dynamics in an Historical Perspective," IMF Working Papers 13/214, International Monetary Fund.

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