Reflating Japan: Time to Get Unconventional?

47 Pages Posted: 9 Dec 2016

See all articles by Elif C. Arbatli

Elif C. Arbatli

International Monetary Fund (IMF)

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department

Kevin Clinton

Government of Canada - Bank of Canada

Pietro Cova

Bank of Italy

Vitor Gaspar

European Commission

Zoltan Jakab

International Monetary Fund

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Constant Lonkeng Ngouana

International Monetary Fund (IMF)

Joannes Mongardini

International Monetary Fund (IMF)

Hou Wang

International Monetary Fund (IMF)

Date Written: August 2016

Abstract

Japan has ambitious economic goals: 3 percent nominal growth; 2 percent inflation; and a primary budget surplus. Abenomics has employed the three arrows of monetary, fiscal and structural policies, but the goals remain out of reach. We propose that countercyclical measures be embedded in long-run frameworks that anchor expectations for inflation and public debt. In addition, we argue for an incomes policy to assist reflation. Model simulations suggest that, combined, these proposals would make headway towards the goals, with, on balance, a better chance of success than the more unconventional policy alternatives proposed by Krugman, Svensson, and Turner from a risk-return perspective.

Keywords: Fiscal policy, Japan, Labor markets, Wages, Incomes policy, Fiscal reforms, Unconventional monetary policy instruments, Inflation targeting, Econometric models, Japan; monetary policy; fiscal policy; incomes policy; structural reforms

JEL Classification: E31, E39, E52, E62, E64

Suggested Citation

Arbatli, Elif C. and Botman, Dennis P. J. and Clinton, Kevin and Cova, Pietro and Gaspar, Vitor and Jakab, Zoltan and Laxton, Douglas and Lonkeng Ngouana, Constant and Mongardini, Joannes and Wang, Hou, Reflating Japan: Time to Get Unconventional? (August 2016). IMF Working Paper No. 16/157, Available at SSRN: https://ssrn.com/abstract=2882593

Elif C. Arbatli (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Kevin Clinton

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada
613-782-8766 (Phone)
613-782 7508 (Fax)

Pietro Cova

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Vitor Gaspar

European Commission ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7200 (Phone)
+49 69 1344 6575 (Fax)

Zoltan Jakab

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Constant Lonkeng Ngouana

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Joannes Mongardini

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Hou Wang

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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