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Understanding the Costs of Deflation in the Japanese Context

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  • Taimur Baig
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    Abstract

    This paper examines the cost of deflation in the context of Japan''s ongoing deflationary episode. The impact of deflation owing to the zero interest rate bound on monetary policy, wage rigidity, redistribution of wealth from debtor to creditor, and inflexibilities in the financial sector are examined. It is seen that the generalized decline in the Japanese price level, however gradual or mild, has substantially exacerbated the economy''s adjustment process under already difficult economic conditions.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/215.

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    Length: 27
    Date of creation: 01 Nov 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/215

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    Related research

    Keywords: Financial sector; inflation; monetary policy; price level; central bank; real interest rate; gdp deflator; aggregate demand; real wages; monetary fund; inflation rate; price stability; real value; low inflation; inflation target; nominal interest rates; real interest rates; monetary base; rate of inflation; financial stability; real output; inflationary pressures; real rates; loose monetary policy; average inflation; real rate of interest; monetary authorities; value of money; price deflation; tight monetary policy; money market; inflationary expectations; average inflation rate; liquidity management; inflation data; terms of trade; percent inflation;

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    1. Mishkin, Frederic S., 1978. "The Household Balance Sheet and the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 38(04), pages 918-937, December.
    2. Taimur Baig & Jörg Decressin & Tarhan Feyzioglu & Manmohan S. Kumar & Chris Faulkner-MacDonagh, 2003. "Deflation," IMF Occasional Papers 221, International Monetary Fund.
    3. Tony Yates, 2004. "Monetary Policy and the Zero Bound to Interest Rates: A Review," Journal of Economic Surveys, Wiley Blackwell, vol. 18, pages 427-481, 07.
    4. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    5. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
    6. Willem H. Buiter, 2003. "Deflation: Prevention and Cure," NBER Working Papers 9623, National Bureau of Economic Research, Inc.
    7. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
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    Cited by:
    1. Canry, Nicolas & Fouquau, Julien & Lechevalier, Sébastien, 2007. "Price Dynamics in Japan (1981-2001): A Structural Analysis of Mechanisms in the Goods and Labor Markets," Discussion Paper Series a493, Institute of Economic Research, Hitotsubashi University.
    2. repec:hal:journl:halshs-00140624 is not listed on IDEAS

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