Understanding Output and Price Dynamics in Japan: Why Have Japan's Price Movements Been Relatively Stable Since the 1990s?

Masahiko Shibamoto and Ryuzo Miyao

No 219, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Since the beginning of the 1990s, Japanese inflation has been relatively stable with slight declines, while output has remained volatile with a prolonged stagnation. This paper attempts to explore possible explanations for these macroeconomic facts based on the aggregate demand and supply framework. Specifically, applying a vector autoregressive framework that allows for correlations between structural disturbances, it examines two broad questions in a unified way: (i) whether the slope of the short-run aggregate supply curve became significantly flattened and/or (ii) whether structural demand and supply shocks are more strongly positive correlated. Our results suggest that positive correlation between structural demand and supply shocks has become stronger since the 1990s, while there is less evidence that the short-run aggregate supply curve has been flattened. We argue that shifts in aggregate demand and supply curves in the same direction lead to larger, permanent effects on output and to limited effects on prices in Japan.

Keywords: Japanese business cycle fluctuations; Aggregate demand and supply model; Correlation between demand and supply shocks (search for similar items in EconPapers)
JEL-codes: C32 E3 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2008-05
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:219

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