Fiscal Inflation in Japan: The Role of Unfunded Fiscal Shocks

Takeki Sunakawa
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Takeki Sunakawa: Professor, Faculty of Economics, Hitotsubashi University (E-mail: takeki.sunakawa@gmail.com)

No 25-E-14, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: We investigate the extent to which fiscal factors have contributed to inflation in Japan over the past four decades. Despite sustained fiscal expansion and rising debt since the 1990s, inflation remained low until recent years. Using the medium-scale DSGE model developed by Bianchi et al. (2023), we estimate the model with Japanese data and find that, in contrast to the U.S. case, unfunded fiscal shocks are not the main drivers of inflation in Japan. Instead, real demand and supply shocks, along with accommodative monetary policy, have played more significant roles in shaping inflation dynamics.

Keywords: Inflation; Fiscal Theory of Price Level; Japan (search for similar items in EconPapers)
JEL-codes: E31 E52 E62 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-dge, nep-his, nep-inv, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:25-e-14

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