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Understanding Post-Pandemic Inflation in Japan and the U.S.: A Narrative Sign Restriction Approach

Author

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  • Kaori Ochi

    (Bank of Japan)

Abstract

Following the COVID-19 pandemic, the surge in inflation which defined its aftermath created a heightened interest amongst academics and policy makers to identify the structural factors of inflation dynamics. Against this backdrop, this paper uses a structural vector autoregression (SVAR) with narrative sign restrictions to characterize how the inflation episode of the COVID-19 pandemic compared across Japan and the U.S. The findings are threefold: (1) Japan and the U.S. share similar cyclical patterns in the sense that the initial inflation run-up was driven by supply and global shocks, followed by pent-up demand factors, which ultimately led to inflationary pressures from labor market tightening shocks, (2) labor market tightness shows the non-negligible contributions on inflation for both countries, and (3) narrative sign restrictions are informative as a strategy for the identification of structural shocks.

Suggested Citation

  • Kaori Ochi, 2026. "Understanding Post-Pandemic Inflation in Japan and the U.S.: A Narrative Sign Restriction Approach," Bank of Japan Working Paper Series 26-E-4, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp26e04
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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