Explaining inflation in the period of quantitative easing in Japan: Relative-price changes, aggregate demand, and monetary policy
Bernd Hayo () and
Journal of Asian Economics, 2015, vol. 36, issue C, 72-85
Concentrating on the period of quantitative easing in Japan, this paper reexamines the correlation between the asymmetry of sectoral relative-price changes and the aggregate inflation rate. This correlation is widely interpreted as evidence that short-run inflation is determined by supply-side factors; however, we study whether, in addition to the inflation rate, monetary policy and aggregate demand explain it. Using producer price index data, we show, first, that the positive and significant effect of relative-price change asymmetries on inflation is not robust with respect to various indicators of asymmetry. Second, using a VAR framework, we find that aggregate demand robustly affects the measures of asymmetries, which raises doubt about whether they can be interpreted as pure supply-side indicators. Third, in addition to the indirect effect via measures of asymmetries, demand directly affects inflation. Thus, we reject the claim that the recent disinflation/deflation period in Japan can be understood as primarily a supply-side phenomenon and suggest that the main driving force was demand, whereas supply and monetary policy were of lesser importance.
Keywords: Japan; Inflation; Deflation; Price-change asymmetries; Quantitative easing (search for similar items in EconPapers)
JEL-codes: E20 E31 E52 E65 O53 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:36:y:2015:i:c:p:72-85
Access Statistics for this article
Journal of Asian Economics is currently edited by C. Wiemer
More articles in Journal of Asian Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().