Understanding the Costs of Deflation in the Japanese Context

27 Pages Posted: 12 Feb 2006

See all articles by Taimur Baig

Taimur Baig

International Monetary Fund (IMF)

Date Written: November 2003

Abstract

This paper examines the cost of deflation in the context of Japan's ongoing deflationary episode. The impact of deflation owing to the zero interest rate bound on monetary policy, wage rigidity, redistribution of wealth from debtor to creditor, and inflexibilities in the financial sector are examined. It is seen that the generalized decline in the Japanese price level, however gradual or mild, has substantially exacerbated the economy's adjustment process under already difficult economic conditions.

Keywords: Deflation, Monetary Policy, Wage Rigidity, Financial Sector

JEL Classification: D31, E31, E52, G10, J39

Suggested Citation

Baig, Taimur, Understanding the Costs of Deflation in the Japanese Context (November 2003). IMF Working Paper No. 03/215, Available at SSRN: https://ssrn.com/abstract=880897

Taimur Baig (Contact Author)

International Monetary Fund (IMF) ( email )

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