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The Anchoring of Inflation Expectations in Japan: A Learning-Approach Perspective

Yoshihiko Hogen and Ryoichi Okuma
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Yoshihiko Hogen: Bank of Japan
Ryoichi Okuma: Bank of Japan

No 18-E-8, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper employs a model of learning about long-term inflation to jointly estimate long-term inflation expectations and the degree to which they have been anchored to the 2 percent inflation mark over the last half century in Japan. The estimated model shows that long-term inflation expectations declined to about 2 percent in the late 1980s and remained anchored to the 2 percent mark until the mid-1990s. They fell below 2 percent in the late 1990s, which resulted in a low degree of anchoring until the early 2010s. Following the introduction of the price stability target of 2 percent and the launch of Qualitative and Quantitative Monetary Easing in early 2013, inflation expectations rose until early 2015, but have not yet been anchored to the target. A further VAR analysis demonstrates that markups in domestic goods and services markets are one important reason why expectations have not been anchored at 2 percent since the late 1990s.

Keywords: Inflation expectations; Anchoring; Learning (search for similar items in EconPapers)
JEL-codes: D83 D84 E31 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
Date: 2018-04-06
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