The Costs and Benefits of Inflation: Evaluation for Japan's Economy

Hitoshi Fuchi, Nobuyuki Oda and Hiroshi Ugai
Additional contact information
Hitoshi Fuchi: Bank of Japan
Nobuyuki Oda: Bank of Japan
Hiroshi Ugai: Bank of Japan

No 07-E-10, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper quantitatively evaluates a steady-state inflation rate that is considered desirable from the perspective of social welfare, using a model describing the Japanese economy. Specifically, it begins by setting out points concerning the costs and benefits that accompany inflation. We build a model capable of evaluating the effects, on social welfare, of several of these points: the opportunity cost of holding money, the zero lower bound on nominal interest rates, price stickiness and the downward wage rigidity. Building on this, we conduct a stochastic simulation that quantitatively evaluates the social loss with different steady-state inflation rates. We also analyze the range of changes in the steady-state inflation rate that minimizes the social loss when we change the model settings.

Keywords: Inflation; Social loss; Monetary policy; Zero lower bound on nominal interest rates; Downward wage rigidity; Price stickiness; Opportunity cost of holding money (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2007-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.boj.or.jp/en/research/wps_rev/wps_2007/data/wp07e10.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:boj:bojwps:07-e-10

Access Statistics for this paper

More papers in Bank of Japan Working Paper Series from Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Bank of Japan ().