Wage-Price Dynamics and Structural Reforms in Japan

Davide Porcellacchia

No 2016/020, IMF Working Papers from International Monetary Fund

Abstract: Structural reforms in the liquidity trap need not be deflationary. This paper develops a simple framework to study the role that key characteristics of Japan’s labor and product markets—labor-market duality and weak corporate governance—play in generating unfavorable wage-price dynamics. The model allows a discussion of whether and in what form structural reforms may contribute to Japan’s short-run goal of reflating the economy. It finds that boosting inflation with structural reforms implies an unusual trade-off with employment, that is an inverted Phillips curve. Simultaneous implementation of labor-market and product-market reforms is most effective in terms of reflating the economy.

Keywords: WP; liquidity trap; labor market; nominal interest rate; price level; real wage; Abenomics; corporate governance; inflation; Japan; labor-market duality; structural reforms; wage-price dynamics; single open-ended contract; market power; cash holding; Phillips curve; Zero lower bound; Labor markets; Liquidity; Global (search for similar items in EconPapers)
Pages: 26
Date: 2016-02-10
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Citations: View citations in EconPapers (1)

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