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Trends in the Discussions of the Costs and Benefits of Price Fluctuations

Author

Listed:
  • Yu Sugioka

    (Bank of Japan)

  • Yuichiro Ito

    (Bank of Japan)

  • Sohei Kaihatsu

    (Bank of Japan)

  • Kousuke Takatomi

    (Bank of Japan)

Abstract

The impact of price fluctuations on social welfare has been a significant area of research in economics. This article reviews trends in the discussions of the costs and benefits of price fluctuations and the related topic of desirable inflation rates. Examining the discussions of desirable inflation rates in the 1990s, numerous studies highlighted the costs of inflation, particularly in relation to money holdings. In the 2000s, a central view was that it was desirable for prices to remain constant under conditions of price rigidity. Thereafter, following the global financial crisis and the subsequent period of low inflation in major economies, there has been lively debate about the costs of deflation and low inflation, stemming from the zero lower bound on nominal interest rates and nominal wage rigidity. Recent research suggests that even in a context of price rigidity, moderate inflation may be desirable for social welfare, considering heterogeneity across firms and products. Since there are numerous challenges in evaluating the impact of price fluctuations on social welfare, assessments from various perspectives are essential.

Suggested Citation

  • Yu Sugioka & Yuichiro Ito & Sohei Kaihatsu & Kousuke Takatomi, 2024. "Trends in the Discussions of the Costs and Benefits of Price Fluctuations," Bank of Japan Research Laboratory Series 24-E-2, Bank of Japan.
    • Handle: RePEc:boj:bojlab:lab24e02
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    More about this item

    Keywords

    Inflation; Optimal Monetary Policy; Price Setting Behavior; Wage Setting;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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