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Is There a Change in the Trade-Off Between Output and Inflation at Low or Stable Inflation Rates?: Some Evidence in the Case of Japan

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  • Annabelle Mourougane
  • Hideyuki Ibaragi

Abstract

This paper examines the relationship between the output gap and inflation in Japan by estimating Phillips curves and testing for changes since the advent of low inflation and/or the stabilisation of the rate of change of inflation. The work provides empirical support for the hypothesis of a change in the relationship between output and inflation in an environment of low inflation for Japan. In particular, there is evidence that the slope of the Phillips curve becomes flatter when the inflation rate is below ½ per cent (quarter-on-quarter, non-annualised) and also that there has been a break in the relationship between demand pressures and inflation in Japan since the beginning of the 1990s. Evidence is also found that the relationship changes when the inflation rate is either rising rapidly or falling sharply. At such times, changes in demand pressure have stronger effects on inflation. These results are robust to a wide range of specifications, including corrections for the ... La relation entre indicateurs de demande et inflation change-t-elle dans un contexte de basse ou de stabilité de l'inflation? : Le cas du japon Cette étude examine la relation entre l’écart de croissance et l’inflation au Japon en estimant des courbes de Phillips et teste si cette relation se modifie dans un contexte d’inflation basse et/ou de stabilité de l’inflation. Les estimations présentées constituent un support empirique relativement détaillé de l’hypothèse d’un changement dans la relation entre indicateur de demande et inflation dans un environnement de basse inflation pour le Japon. En particulier, la pente de la courbe de Phillips s’aplatit quand le taux d’inflation est en dessous d’½ pour cent (taux trimestriel, non annualisé) et il existe un break dans la relation entre indicateur de demande et inflation au Japon au début des années 90. La relation apparaît aussi se modifier quand le taux d’inflation augmente ou baisse rapidement. Durant de telles périodes, les mouvements dans les indicateurs de demande ont un effet plus fort sur l’inflation. Les résultats obtenus sont robustes à la correction des hausses de ...

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File URL: http://dx.doi.org/10.1787/685810855735
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 379.

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Date of creation: 02 Feb 2004
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Handle: RePEc:oec:ecoaaa:379-en

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Keywords: Japan; Phillips curve; asymmetry; low inflation environment; Japon; courbe de Phillips; asymétrie; environnement de basse inflation;

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Cited by:
  1. Alfonso Palacio-Vera, 2006. "On Lower-bound Traps: A Framework for the Analysis of Monetary Policy in the ÒAgeÓ of Central Banks," Economics Working Paper Archive, Levy Economics Institute wp_478, Levy Economics Institute.
  2. Emmanuel De Veirman, 2007. "Which Nonlinearity in the Phillips Curve? The Absence of Accelerating Deflation in Japan," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 536, The Johns Hopkins University,Department of Economics.
  3. Alfonso Palacio-Vera, 2008. "Money wage rigidity, monopoly power and hysteresis," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales 08-02, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
  4. Isabell Koske & Nigel Pain, 2008. "The Usefulness of Output Gaps for Policy Analysis," OECD Economics Department Working Papers, OECD Publishing 621, OECD Publishing.
  5. William Martin & Robert Rowthorn, 2004. "Will Stability Last?," CESifo Working Paper Series 1324, CESifo Group Munich.

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