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Understanding the Costs of Deflation in the Japanese Context

  • Taimur Baig
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    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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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16943
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    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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    1. Koichiro Kamada & Naohisa Hirakata, 2002. "Import Penetration and Consumer Prices," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
    2. 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.
    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. 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.
    6. Willem H. Buiter, 2003. "Deflation: Prevention and Cure," NBER Working Papers 9623, National Bureau of Economic Research, Inc.
    7. Taimur Baig & Jörg Decressin & Tarhan Feyzioglu & Manmohan S. Kumar & Chris Faulkner-MacDonagh, 2003. "Deflation; Determinants, Risks, and Policy Options," IMF Occasional Papers 221, International Monetary Fund.
    8. 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.
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