IDEAS home Printed from https://ideas.repec.org/a/bla/ecinqu/v51y2013i1p273-287.html
   My bibliography  Save this article

Inflation Dynamics And Labor Market Specifications: A Bayesian Dynamic Stochastic General Equilibrium Approach For Japan'S Economy

Author

Listed:
  • HIBIKI ICHIUE
  • TAKUSHI KUROZUMI
  • TAKEKI SUNAKAWA

Abstract

Many studies of inflation dynamics assume that in the presence of competitive labor markets firms adjust labor input only at the intensive margin. We consider labor market search and examine the role of the extensive margin for inflation dynamics by estimating three models with distinct labor adjustments. Our Bayesian estimation result shows that the model with only the extensive margin is superior to that with only the intensive one in terms of marginal likelihood. This suggests that the extensive margin may be more important for inflation dynamics in Japan. We also show that introducing the intensive margin into the extensive margin model further improves marginal likelihood. Moreover, we find that real marginal costs in these models with the extensive margin are highly correlated with the Bank of Japan's estimates of the output gap.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Hibiki Ichiue & Takushi Kurozumi & Takeki Sunakawa, 2013. "Inflation Dynamics And Labor Market Specifications: A Bayesian Dynamic Stochastic General Equilibrium Approach For Japan'S Economy," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 273-287, January.
  • Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:273-287
    DOI: j.1465-7295.2011.00428.x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1465-7295.2011.00428.x
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
    2. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    3. Hibiki Ichiue & Takushi Kurozumi & Takeki Sunakawa, 2013. "Inflation Dynamics And Labor Market Specifications: A Bayesian Dynamic Stochastic General Equilibrium Approach For Japan'S Economy," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 273-287, January.
    4. Takushi Kurozumi & Willem Van Zandweghe, 2008. "Labor market search and interest rate policy," Research Working Paper RWP 08-03, Federal Reserve Bank of Kansas City.
    5. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    6. Krause, Michael U. & Lopez-Salido, David & Lubik, Thomas A., 2008. "Inflation dynamics with search frictions: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 892-916, July.
    7. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    8. Kai Christoffel & Keith Kuester & Tobias Linzert, 2006. "Identifying the Role of Labor Markets for Monetary Policy in an Estimated DSGE Model," 2006 Meeting Papers 544, Society for Economic Dynamics.
    9. Kai Christoffel & Tobias Linzert, 2010. "The Role of Real Wage Rigidity and Labor Market Frictions for Inflation Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1435-1446, October.
    10. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
    11. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    12. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
    13. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    14. G. M. Martin & C. S. Forbes, 1999. "Using simulation methods for bayesian econometric models: inference, development and communication: some comments," Econometric Reviews, Taylor & Francis Journals, vol. 18(1), pages 113-118.
    15. Andrew T. Levin & Alexei Onatski & John Williams & Noah M. Williams, 2006. "Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models," NBER Chapters,in: NBER Macroeconomics Annual 2005, Volume 20, pages 229-312 National Bureau of Economic Research, Inc.
    16. Rabanal, Pau & Rubio-Ramirez, Juan F., 2005. "Comparing New Keynesian models of the business cycle: A Bayesian approach," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1151-1166, September.
    17. Naoko Hara & Naohisa Hirakata & Yusuke Inomata & Satoshi Ito & Takuji Kawamoto & Takushi Kurozumi & Makoto Minegishi & Izumi Takagawa, 2006. "The New Estimates of Output Gap and Potential Growth Rate," Bank of Japan Review Series 06-E-3, Bank of Japan.
    18. Ichiro Muto, 2009. "Estimating A New Keynesian Phillips Curve With A Corrected Measure Of Real Marginal Cost: Evidence In Japan," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 667-684, October.
    19. Van Zandweghe, Willem, 2010. "On-the-job search, sticky prices, and persistence," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 437-455, March.
    20. Antonella Trigari, 2009. "Equilibrium Unemployment, Job Flows, and Inflation Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 1-33, February.
    21. Iiboshi, Hirokuni & Nishiyama, Shin-Ichi & Watanabe, Toshiaki, 2006. "An Estimated Dynamic Stochastic General Equilibrium Model of the Japanese Economy: A Bayesian Analysis," MPRA Paper 85702, University Library of Munich, Germany.
    22. John Geweke, 1999. "Using simulation methods for bayesian econometric models: inference, development,and communication," Econometric Reviews, Taylor & Francis Journals, vol. 18(1), pages 1-73.
    23. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Working Paper Series 923, European Central Bank.
    24. Linzert, Tobias & Christoffel, Kai & Kuester, Keith, 2006. "Identifying the role of labor markets for monetary policy in an estimated DSGE model," Working Paper Series 635, European Central Bank.
    25. Kurozumi, Takushi & Van Zandweghe, Willem, 2010. "Labor market search, the Taylor principle, and indeterminacy," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 851-858, October.
    26. Sugo, Tomohiro & Ueda, Kozo, 2008. "Estimating a dynamic stochastic general equilibrium model for Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 476-502, December.
    27. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    28. W. E. Griffiths, 1999. "Estimating consumer surplus comments on "using simulation methods for bayesian econometric models: inference development and communication"," Econometric Reviews, Taylor & Francis Journals, vol. 18(1), pages 75-87.
    29. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 865-887, July.
    30. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    31. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    32. Sveen, Tommy & Weinke, Lutz, 2008. "New Keynesian perspectives on labor market dynamics," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 921-930, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yoshino, Naoyuki & Miyamoto, Hiroaki, 2017. "Decreased Effectiveness of Fiscal and Monetary Policies in Japan’s Aging Society," ADBI Working Papers 691, Asian Development Bank Institute.
    2. Hibiki Ichiue & Takushi Kurozumi & Takeki Sunakawa, 2013. "Inflation Dynamics And Labor Market Specifications: A Bayesian Dynamic Stochastic General Equilibrium Approach For Japan'S Economy," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 273-287, January.
    3. YANO Koiti, 2010. "Time-varying Analysis of Dynamic Stochastic General Equilibrium Models Based on Sequential Monte Carlo Methods," ESRI Discussion paper series 231, Economic and Social Research Institute (ESRI).
    4. Chun-Hung Kuo & Hiroaki Miyamoto, 2016. "Unemployment and Wage Rigidity in Japan: A DSGE Model Perspective," Working Papers EMS_2016_06, Research Institute, International University of Japan.
    5. Yoshiyuki Kurachi & Kazuhiro Hiraki & Shinichi Nishioka, 2016. "Does a Higher Frequency of Micro-level Price Changes Matter for Macro Price Stickiness?: Assessing the Impact of Temporary Price Changes," Bank of Japan Working Paper Series 16-E-9, Bank of Japan.
    6. S Borağan Aruoba & Pablo Cuba-Borda & Frank Schorfheide, 2018. "Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries," Review of Economic Studies, Oxford University Press, vol. 85(1), pages 87-118.
    7. Yasuo Hirose & Takushi Kurozumi, 2012. "Do Investment-Specific Technological Changes Matter For Business Fluctuations? Evidence From Japan," Pacific Economic Review, Wiley Blackwell, vol. 17(2), pages 208-230, May.
    8. Takuji Fueki & Ichiro Fukunaga & Hibiki Ichiue & Toyoichiro Shirota, 2016. "Measuring Potential Growth with an Estimated DSGE Model of Japan’s Economy," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 1-32, March.
    9. Yasuo Hirose, 2014. "An Estimated DSGE Model with a Deflation Steady State," UTokyo Price Project Working Paper Series 025, University of Tokyo, Graduate School of Economics.
    10. repec:eee:japwor:v:42:y:2017:i:c:p:32-44 is not listed on IDEAS
    11. Ichiro Fukunaga & Naoko Hara & Satoko Kojima & Yoichi Ueno & Shunichi Yoneyama, 2011. "The Quarterly Japanese Economic Model (Q-JEM): 2011 Version," Bank of Japan Working Paper Series 11-E-11, Bank of Japan.
    12. Tomiyuki Kitamura, 2010. "Measuring Monetary Policy Under Zero Interest Rates With a Dynamic Stochastic General Equilibrium Model: An Application of a Particle Filter," Bank of Japan Working Paper Series 10-E-10, Bank of Japan.
    13. IWATA Yasuharu, 2009. "Fiscal Policy in an Estimated DSGE Model of the Japanese Economy: Do Non-Ricardian Households Explain All?," ESRI Discussion paper series 216, Economic and Social Research Institute (ESRI).
    14. YANO Koiti, 2009. "Dynamic Stochastic General Equilibrium Models Under a Liquidity Trap and Self-organizing State Space Modeling," ESRI Discussion paper series 206, Economic and Social Research Institute (ESRI).
    15. McNelis, Paul D. & Yoshino, Naoyuki, 2016. "Finding stability in a time of prolonged crisis: Unconventional policy rules for Japan," Journal of Financial Stability, Elsevier, vol. 27(C), pages 122-136.
    16. Yasuharu Iwata, 2011. "The Government Spending Multiplier and Fiscal Financing: Insights from Japan," International Finance, Wiley Blackwell, vol. 14(2), pages 231-264, June.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:273-287. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/weaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.