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Wage-Price Dynamics and Structural Reforms in Japan
Author:
Davide Porcellacchia null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 020
Language:
English
Publication Date:
10 Feb 2016
DOI:
https://doi.org/10.5089/9781498316637.001
ISBN:
9781498316637
ISSN:
1018-5941
Pages:
26
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund