Defining Price Stability in Japan: A View from America
Japanese monetary and fiscal policy uses the consumer price index (CPI) as a metric for price stability. Despite a major effort to improve the index, the Japanese methodology of calculating the CPI seems to have a large number of deficiencies. Little attention is paid in Japan to substitution biases and quality upgrading. This implies that important methodological differences have emerged between the United States and Japan since the former started to correct for these biases in 1999. We estimate that using the new corrected U.S. methodology, Japanfs deflation averaged 1.2 percent per year since 1999. This is more than twice the deflation suggested by Japanese national statistics. Ignoring these methodological differences is misleading, because it would suggest that U.S. real per capita consumption growth has been growing at a rate that is almost 2 percentage points higher than that of Japan between 1999 and 2006. When a common methodology is used, Japanfs growth has been much closer to that of the United States over this period. Moreover, we estimate that the bias of the Japanese CPI relative to a true cost-of- living index is around 2 percent per year. This overstatement in the Japanese CPI in combination with Japanfs low inflation rate is likely to cost the government more than \69 trillion?or 14 percent of GDP?over the next 10 years in increased Social Security transfers and debt service. For monetary policy, the overstatement of inflation suggests that if the BOJ adopts a formal inflation target without changing the current CPI methodology, a lower band of less than 1.8 percent would not achieve its goal of price stability.
Volume (Year): 25 (2007)
Issue (Month): S1 (December)
|Contact details of provider:|| Postal: |
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- Peter J. Klenow & Oleksiy Kryvtsov, 2007.
"State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?,"
07-007, Stanford Institute for Economic Policy Research.
- Peter J. Klenow & Oleksiy Kryvtsov, 2008. "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 863-904, August.
- Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," Working Papers 05-4, Bank of Canada.
- Oleksiy Kryvtsov & Peter J. Klenow, 2004. "State-Dependent or Time-Dependent Pricing: Does It Matter For Recent U.S. Inflation?," Computing in Economics and Finance 2004 277, Society for Computational Economics.
- Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," NBER Working Papers 11043, National Bureau of Economic Research, Inc.
- Shigenori Shiratsuka, 1999. "Measurement errors in Japanese Consumer Price Index," Working Paper Series WP-99-2, Federal Reserve Bank of Chicago.
- Christian Broda & David E. Weinstein, 2007.
"Product Creation and Destruction: Evidence and Price Implications,"
NBER Working Papers
13041, National Bureau of Economic Research, Inc.
- Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
- David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
When requesting a correction, please mention this item's handle: RePEc:ime:imemes:v:25:y:2007:i:s1:p:169-206. 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: (Kinken)
If references are entirely missing, you can add them using this form.