Understanding the Costs of Deflation in the Japanese Context

Taimur Baig

No 2003/215, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the cost of deflation in the context of Japan's ongoing deflationary episode. The impact of deflation owing to the zero interest rate bound on monetary policy, wage rigidity, redistribution of wealth from debtor to creditor, and inflexibilities in the financial sector are examined. It is seen that the generalized decline in the Japanese price level, however gradual or mild, has substantially exacerbated the economy's adjustment process under already difficult economic conditions.

Keywords: WP; monetary policy; price; Deflation; Wage Rigidity; Financial Sector; Core CPI deflation; inflation expectation; aggregate demand; GDP deflator; debt-deflation theory; rising prices; unanticipated deflation; deflation pressure; monetary policy efficacy; Inflation; Asset prices; Consumer price indexes; Real interest rates (search for similar items in EconPapers)
Pages: 27
Date: 2003-11-01
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Citations: View citations in EconPapers (7)

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