Achieving the Bank of Japan’s Inflation Target

Gee Hee Hong, Rahul Anand and Yaroslav Hul

No 2019/229, IMF Working Papers from International Monetary Fund

Abstract: The Bank of Japan has introduced various unconventional monetary policy tools since the launch of Abenomics in 2013, to achieve the price stability target of 2 percent inflation. In this paper, a forward-looking open-economy general equilibrium model with endogenously determined policy credibility and an effective lower bound is developed for forecasting and policy analysis (FPAS) for Japan. In the model’s baseline scenario, the likelihood of the Bank of Japan reaching its 2 percent inflation target over the medium term is below 40 percent, assuming the absence of other policy reactions aside from monetary policy. The likelihood of achieving the inflation target is even lower under alternative risk scenarios. A positive shock to central bank credibility increases this likelihood, and would require less accommodative macroeconomic policies.

Keywords: WP; Inflation targeting; forecasting; fan charts; zero lower bound; FPAS; inflation expectation; output gap; one percent core inflation cost-push shock; BoJ staff baseline; headline CPI inflation; inflation projection; Inflation; Central bank policy rate; Output gap; Interest rate floor (search for similar items in EconPapers)
Pages: 37
Date: 2019-11-01
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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