Can Economics Explain Deflation in Japan? (in Japanese)

Yutaka Harada and Kazuyoshi Nakata

ESRI Discussion paper series from Economic and Social Research Institute (ESRI)

Abstract: Deflation continues in Japan. The domestic corporate goods price index, excluding the effect of the consumption tax, has continuously declined since 1992. Moreover, the consumer price index (excluding fresh food) has declined since 1998. Why, then, does deflation continue? What do economists think of deflation? The purpose of this paper is to abstract the mechanism of price determination from Japanese macroeconomics textbooks, and to judge whether those mechanism can explain Japanese deflation. The basic conclusions of this paper are as follows. The mechanism of price determination is clearly explained in Japanese textbooks, which emphasize the short-term determination mechanism based on aggregated demand-aggregated supply curves. The mechanism says that price is explained by the money supply, by the gap between demand and supply, by expected inflation, and so on, and we empirically proved that the mechanism can explain real Japanese price fluctuations.

Pages: 20 pages
Date: 2003-11
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