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Wage-Price Dynamics and Structural Reforms in Japan

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  • Davide Porcellacchia

Abstract

Structural reforms in the liquidity trap need not be deflationary. This paper develops a simple framework to study the role that key characteristics of Japan’s labor and product markets—labor-market duality and weak corporate governance—play in generating unfavorable wage-price dynamics. The model allows a discussion of whether and in what form structural reforms may contribute to Japan’s short-run goal of reflating the economy. It finds that boosting inflation with structural reforms implies an unusual trade-off with employment, that is an inverted Phillips curve. Simultaneous implementation of labor-market and product-market reforms is most effective in terms of reflating the economy.

Suggested Citation

  • Davide Porcellacchia, 2016. "Wage-Price Dynamics and Structural Reforms in Japan," IMF Working Papers 2016/020, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/020
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    References listed on IDEAS

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