Publication - Raising an Inflation Target: the Japanese Experience with Abenomics -
by Andrea De Michelis and Matteo Iacoviello
Copyright: Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551
by Andrea De Michelis and Matteo Iacoviello
Abstract: This paper draws from Japan's recent monetary experiment to examine the effects of an increase in the inflation target during a liquidity trap.
We review Japanese data and examine through a VAR model how macroeconomic variables respond to an identified inflation target shock. We apply these findings to calibrate the effect of a shock to the inflation target in a new-Keynesian DSGE model of the Japanese economy.
We argue that imperfect observability of the inflation target and a separate exchange rate shock are needed to successfully account for the behavior of nominal and real variables in Japan since late 2012. Our analysis indicates that Japan has made some progress towards overcoming deflation, but further measures are needed to raise inflation to 2 percent in a stable manner.
Copyright: Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551
page source http://www.federalreserve.gov/
