Time varying pass-through: Will the yen depreciation help Japan hit the inflation

Etsuro Shioji

No e092, Working Papers from Tokyo Center for Economic Research

Abstract: There is a growing recognition that pushing up the public's inflation expectation is a key to a successful escape from a chronic deflation. The question is how this can be achieved when the economy is stuck in a liquidity trap. This paper argues that, for Japan, the currency depreciation since the late 2012 could turn out to be useful for ending the country's long battle with falling prices. Prior studies have suggested that household expectations are greatly influenced by prices of items that they purchase frequently. This paper demonstrates that the extent of exchange rate pass-through to those prices, once near-extinct, has come back strong in recent years. Evidence based on VARs as well as TVP-VARs indicates that a 25% depreciation of the yen would produce a 2% increase in the prices of goods that households purchase regularly.

Pages: 28 pages
Date: 2015-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://www.tcer.or.jp/wp/pdf/e92.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcr:wpaper:e92

Access Statistics for this paper

More papers in Working Papers from Tokyo Center for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ().