Sohei Kaihatsu - Academia.edu (original) (raw)

Papers by Sohei Kaihatsu

Review of Economic Dynamics, 2014

Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion ... more Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank. If you have any comment or question on the working paper series, please contact each author. When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department

Journal of Money, Credit and Banking, 2022

This paper presents a new framework for measuring underlying inflation with multiple core indicat... more This paper presents a new framework for measuring underlying inflation with multiple core indicators for Japan's consumer price index (CPI). Specifically, a combined core indicator is constructed by applying an econometric method based on dynamic model averaging as a weighted average of individual core indicators. The combined core indicator has time-varying combination weights reflecting changes in the predictive performance of each individual core indicator on a real time basis. Thus, the combined core indicator has the potential to adapt to changes in the nature and sources of price movements. Empirical evidence indicates that the combined core indicator firmly outperforms the individual core indicators over time. In addition, the combination weights for the exclusion-based indicators (e.g., the CPI excluding fresh food) tend to be high when aggregate shocks drive the overall inflation. In contrast, combination weights for the distribution-based indicators (e.g., trimmed mean...

Despite the widespread belief that Japans Great Stagnationin the 1990s is due to the nancial ... more Despite the widespread belief that Japans Great Stagnationin the 1990s is due to the nancial dysfunction after the collapse of asset price bubbles, Hayashi and Prescott (2002) argue that its main cause is a fall in total factor productivity growth, using a calibrated neoclassical growth model. Our paper lls this gap by estimating a dynamic stochastic general equilibrium model augmented with a nancial accelerator mechanism and associated nancial shocks. Our estimation results show that even in the presence of the nancial shocks an adverse neutral technology shock mainly induced the Great Stagnation and that the estimated neutral technological change is strongly correlated with all enterprisesnancial position in the Tankan. Based on these ndings, we argue that an adverse neutral technology shock which is likely to represent a tightening of rmsnancing that induced reduction of R&D investment and misallocation of capital caused the Great Stagnation. Keywords: Japans Great...

The relationship between the price-setting behaviors at the micro level and the inflation dynamic... more The relationship between the price-setting behaviors at the micro level and the inflation dynamics at the macro level is an underexplored research area. In this paper, we first document that (i) a remarkable shift in cross-sectional price-change distributions at the micro level and (ii) a flattening of Phillips curve at the macro level were simultaneously observed in Japan, from the high-inflation periods until the mid-1990s to the low-inflation periods afterward. We, then, empirically show that the menu-cost hypothesis fits the price-setting behavior in Japan and construct a multi-sector general equilibrium model with a higher menu cost in the services sector based on our empirical findings. The quantitative exercise using the model indicates that the above observations at the micro and macro level in Japan can be consistently replicated within a unified model under the declining average inflation and the increasing share of services in output.

This paper aims to examine the formation mechanism of firms' inflation expectations and the r... more This paper aims to examine the formation mechanism of firms' inflation expectations and the relationship between those expectations and wage-setting behaviors. We conduct an empirical analysis based on microdata constructed by matching a business survey for inflation expectations and corporate financial data. Our empirical results demonstrate that firms' short-term and medium- to long-term inflation expectations have significantly increased after the Bank of Japan introduced a price stability target of two percent and quantitative and qualitative monetary easing in 2013. During this period, dispersions of distributions of inflation expectations increased temporarily and then shrank again. These changes vary across business attributes, such as the size of a firm. Therefore, differences in business attributes might result in the heterogeneous reaction of inflation expectations to monetary policy shocks. Furthermore, an empirical analysis using the data from 2004 to 2016 shows ...

This paper estimates a Markov switching dynamic stochastic general equilibrium model (MS-DSGE) al... more This paper estimates a Markov switching dynamic stochastic general equilibrium model (MS-DSGE) allowing for changes in monetary/fiscal policy interaction. The key feature of the model is that it seeks to quantitatively examine the impact of changes in monetary/fiscal policy interaction on economic outcomes even during a period when the ZLB is binding and unconventional monetary policy is implemented. To this end, we estimate our model using the shadow interest rate, which can be interpreted as an aggregate that captures the overall effect of unconventional monetary policies as well as conventional monetary policy. Applying our model to Japan, we identify changes in monetary/fiscal policy interaction even during the period when unconventional monetary policy has been implemented. We find that the introduction of Qualitative and Quantitative Easing (QQE) enables the Bank of Japan to actively respond to the inflation rate, which has helped to push up inflation.

This paper summarizes recent discussion on labor productivity which is the source of medium- to l... more This paper summarizes recent discussion on labor productivity which is the source of medium- to long-term economic growth and observes the characteristics of recent productivity developments using relevant statistical data. Furthermore, the paper examines the background of recent Japan's low labor productivity growth and analyzes issues regarding Japan's sustainable growth.Labor productivity in major advanced countries has been experiencing a slowdown in recent years. This is mainly affected by the slowdown of Total Factor Productivity (TFP). In Japan, there are two reasons behind the slowdown: first, technology and ideas accumulated by research and development (RD and second, these resources are not efficiently reallocated among corporations.In order to improve Japan's productivity in the medium to long-term, it is desirable to encourage the flexible reallocation of management resources such as capital and labor by changing working process at the corporate level in acco...

This paper employs a unique micro dataset in Japan to monitor inflation and wage expectations and... more This paper employs a unique micro dataset in Japan to monitor inflation and wage expectations and investigate their effects on consumer spending. Based on our analysis, wage expectations increased moderately among wider range of employees after the introduction of Quantitative and Qualitative Monetary Easing (QQE). Real wage expectations also recovered recently, although it declined soon after the introduction of QQE, reflecting larger increases in inflation expectations compared with wage expectations. Increases in inflation expectations produced the positive effect on consumer spending on the whole since the positive effect of declines in real interest rates was larger than the negative effect of declines in real wage expectations. Wage expectations were generally influenced by wage perception and business performance outlook. This suggests that improvement in wage expectations needs to associate higher expectations about business performance outlook and realization of wage increa...

This paper proposes a new econometric framework for estimating trend inflation and the slope of t... more This paper proposes a new econometric framework for estimating trend inflation and the slope of the Phillips curve with a regime-switching model. As a unique aspect of our approach, we assume regimes for the trend inflation at one-percent intervals, and estimate the probability of the trend inflation being in each regime. The trend inflation described in the discrete manner provides for an easily interpretable explanation of estimation results as well as a robust estimate. An empirical result indicates that Japan's trend inflation stayed at zero percent for about 15 years after the late 1990s, and then shifted away from zero percent after the introduction of the price stability target and the quantitative and qualitative monetary easing. The U.S. result shows a considerably stable trend inflation at two percent since the late 1990s.

The creditworthiness of companies, and also their profitability and financial condition, are one ... more The creditworthiness of companies, and also their profitability and financial condition, are one way to measure whether the improvement in the risk-taking behavior of companies, such as business fixed investment, is becoming full-scale. In this paper, we use "credit ratings," a major indicator showing the creditworthiness of companies, to verify whether the profitability and the state of balance sheets of companies have reached the stage where they are consistent with positive improvement of credit ratings.

In this study, we examine what unconventional monetary policy measures are effective in escaping ... more In this study, we examine what unconventional monetary policy measures are effective in escaping from a liquidity trap. We develop a heterogeneous agent New Keynesian model with uninsurable income uncertainty and a borrowing constraint. We show that adverse effects of income uncertainty deteriorate in the liquidity trap, which crucially undermines the transmission mechanism of unconventional monetary policy through an increase in precautionary savings. We then draw the following implications: (1) decreasing risk premiums by quantitative easing (QE) is more effective than forward guidance (FG) in the liquidity trap; (2) when the liquidity trap becomes deeper, central banks should conduct QE with sufficiently rapid pace of asset purchases; and (3) the combination of QE and FG yields synergy effects that strengthen the power to escape from the liquidity trap through mitigating precautionary saving motives.

This paper presents theoretical foundations for quantitative easing (QE). Since the late 2000s, w... more This paper presents theoretical foundations for quantitative easing (QE). Since the late 2000s, with no room for lowering policy interest rates, central banks in the major advanced economies have adopted various unconventional monetary policies. QE is one of those unconventional policies and has so far achieved visible results in practice. However, our theoretical understanding of how QE achieves these results remains incomplete. The purpose of this paper is to introduce an inflation-sensitive money provision rule and show theoretically how QE helps an economy escape from a liquidity trap.

Economic Analysis and Policy

The concept of the core capturing allocations that exhaust all possible gains from trade is centr... more The concept of the core capturing allocations that exhaust all possible gains from trade is central in economic theory. Are all allocations included in the core, though, equally likely to emerge in a decentralized exchange economy? We investigate this question by studying the evolution of exchange in such an economy via a dynamic trading process in the spirit of Edgeworth's recontracting. Assuming that along this process individual agents might make mistakes with a small probability, we characterize the stochastically stable distribution of the process and use this distribution to obtain a measure of the relative frequency with which each core allocation will emerge in the long run. Based on this measure, we demonstrate that there exist particular allocations inside the core which are more likely to emerge relative to others. These are allocations which are welfare improving for a larger number of agents, or alternatively, allocations which can be reached relatively easily with only a small number of agents involved in trading.

Journal of the Japanese and International Economies, 2014

ABSTRACT

International Finance, 2016

Should a monetary policy maker following a Taylor-type rule set a higher policy rate than the lev... more Should a monetary policy maker following a Taylor-type rule set a higher policy rate than the level suggested by the rule because of a possibility of an asset price bust in the near future? Our answer to this question for monetary policy makers who have two scenarios of 'boom-bust cycle' and 'stable growth' is yes if the following two conditions are satisfied. First, early warning indicators based on credit and residential investment data show a high probability of a boom-bust cycle occurring. Second, the policy rate path that minimizes the boom-bust probability-based expected value of a social loss associated with inflation and the output gap over the two scenarios is higher than the rate path by the Taylor-type rule. Our counterfactual analysis shows that the Fed should have raised the federal funds rate by a small amount over and above the level suggested by a Taylor-type rule in the early 2000s.

Review of Economic Dynamics, 2014

Journal of Money, Credit and Banking, 2022

Economic Analysis and Policy

Journal of the Japanese and International Economies, 2014

ABSTRACT

International Finance, 2016