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The Impact of the Earthquake on the Output Gap and Prices

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  • Koji Nakamura

    (Bank of Japan)

Abstract

The earthquake that struck Japan in March 2011 has reduced the supply capacity of the economy, which works in the direction of tightening the output gap. At the same time, however, if weak household and corporate sentiment lead to a decline in aggregate demand, this will work in the direction of increasing the slack in the economy. Moreover, developments in supply and demand conditions will differ for different goods and services. The impact of the earthquake on the output gap and prices, therefore, is not straightforward. Moreover, for these reasons, caution is needed when interpreting the results of production function estimates of the output gap. However, as long as medium- to long-term inflation expectations remain stable, temporary changes in the output gap due to the earthquake will have little effect on general prices in the economy as a whole.

Suggested Citation

  • Koji Nakamura, 2011. "The Impact of the Earthquake on the Output Gap and Prices," Bank of Japan Review Series 11-E-4, Bank of Japan.
    • Handle: RePEc:boj:bojrev:11-e-4
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    File URL: http://www.boj.or.jp/en/research/wps_rev/rev_2011/data/rev11e04.pdf
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    Cited by:

    1. Koji Nakamura & Shogo Nakano & Mitsuhiro Osada & Hiroki Yamamoto, 2024. "What Caused the Pandemic-Era Inflation?: Application of the Bernanke-Blanchard Model to Japan," Bank of Japan Working Paper Series 24-E-1, Bank of Japan.
    2. Besstremyannaya, Galina, 2017. "Heterogeneous effect of the global financial crisis and the Great East Japan Earthquake on costs of Japanese banks," Journal of Empirical Finance, Elsevier, vol. 42(C), pages 66-89.

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