Trends in the Discussions of the Costs and Benefits of Price Fluctuations

Yu Sugioka, Yuichiro Ito, Sohei Kaihatsu and Kousuke Takatomi
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Yu Sugioka: Bank of Japan
Yuichiro Ito: Bank of Japan
Kousuke Takatomi: Bank of Japan

No 24-E-2, Bank of Japan Research Laboratory Series from Bank of Japan

Abstract: The impact of price fluctuations on social welfare has been a significant area of research in economics. This article reviews trends in the discussions of the costs and benefits of price fluctuations and the related topic of desirable inflation rates. Examining the discussions of desirable inflation rates in the 1990s, numerous studies highlighted the costs of inflation, particularly in relation to money holdings. In the 2000s, a central view was that it was desirable for prices to remain constant under conditions of price rigidity. Thereafter, following the global financial crisis and the subsequent period of low inflation in major economies, there has been lively debate about the costs of deflation and low inflation, stemming from the zero lower bound on nominal interest rates and nominal wage rigidity. Recent research suggests that even in a context of price rigidity, moderate inflation may be desirable for social welfare, considering heterogeneity across firms and products. Since there are numerous challenges in evaluating the impact of price fluctuations on social welfare, assessments from various perspectives are essential.

Keywords: Inflation; Optimal Monetary Policy; Price Setting Behavior; Wage Setting (search for similar items in EconPapers)
JEL-codes: E24 E31 E52 L11 (search for similar items in EconPapers)
Date: 2024-12-11
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