Invites you to a

Macroeconomics and Trade seminar presented by

Yuta Takahashi

(IER Hitotsubashi University)

Hidden Stagflation

Co-author

Naoki Takayama (IER Hitotsubashi University)

 Tuesday 2 August

10.30am – 12.00pm

Via Zoom: Meeting Link

Abstract: We present evidence that the rise in inflation in Japan since 2014 is a result of a hidden stagflation: the relative prices of durable consumption and ICT investment goods stopped declining, reflecting technology stagnation and exerting an inflationary pressure on the economy and; the real side of the Japanese economy simultaneously started stagnating even further. We construct a multi-good monetary model to account for these facts together and quantify the impact of the technology stagnation on the aggregate inflation rate. We develop a new sign restriction approach to construct informative lower bounds to the impact of the technology stagnation on long-run inflation without relying on the exact Euler equation and some of the balanced growth path properties. By using the lower bounds, we find that inflation would be close to 0% or even negative without the technology stagnation. Moreover, the technology stagnation explains a sizable fraction of the observed slowdown in the real GDP and consumption growth. Our findings challenge the conventional view that Japan emerged from long-lasting deflation owing to the unconventional monetary policies. Finally, we apply our analysis to European countries and uncover the hidden stagflation there as well.

For further information contact: Macroeconomics and Trade seminar series coordinator Dr James Graham (james.a.graham@sydney.edu.au)

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