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Cyclical Activity and Inflation under Secular Stagnation: Empirical Evidence Using Data on Japan's Lost Decades

Masahiko Shibamoto

No DP2022-32, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This paper disputes the suspicions about the existence and stability of the trade-off between nominal inflation and the real economy when missing deflation and reinflation under secular stagnation by providing empirical evidence of the stability of this short-run trade-off. To this end, we construct a simple measure of demand-pull pressures, namely the cyclical activity index, using time-series data for a period that includes Japan's secular stagnation. We then quantitatively examine the relationship between inflation and the measured cyclical activity. The empirical results support that the cyclical activity index has a stable and economically meaningful relationship with short-term inflation.

Keywords: Inflation; Cyclical activity; Phillips curve; Economic slack; Secular stagnation; Japan (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022-06
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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2022-32.pdf First version, 2022 (application/pdf)

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