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Yuta Takahashi (Hitotsubashi University) “Hidden Stagflation”

September 12 @ 12:15 pm - 1:30 pm

The Macroeconomics Seminar:
Time: 12:15 pm – 13:30 pm
Date: 12th of September 2022

Room 3001

Yuta TAKAHASHI (Hitotsubashi University) “Hidden Stagflation”

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 stag- nation 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.