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Inflation Expectations Curve in Japan

Author

Listed:
  • Toshitaka Maruyama

    (Bank of Japan)

  • Kenji Suganuma

    (Bank of Japan)

Abstract

In this paper, we estimate "inflation expectations curve" - a term structure of inflation expectations - combining forecast data of various agents. We use a state-space model which considers consistency among expectations at different horizons, and for relationships between inflation rate, real growth rate and nominal interest rate. We find that the slope of the curve in Japan is positive in almost all periods since the 1990s. In addition, looking at the estimated inflation expectations in time series, the inflation expectations at all horizons rose in the mid-2000s and from late 2012 to 2013, after the downward trend from the early 1990s to the early 2000s. Short-term inflation expectations in particular have tended to shift upwards since the launch of Quantitative and Qualitative Monetary Easing, while being affected by fluctuations in the import price. Finally, a structural VAR analysis shows that the estimated inflation expectations in Japan are largely adaptive, meaning their formation is affected by actual inflation rates.

Suggested Citation

  • Toshitaka Maruyama & Kenji Suganuma, 2019. "Inflation Expectations Curve in Japan," Bank of Japan Working Paper Series 19-E-6, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp19e06
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    File URL: http://www.boj.or.jp/en/research/wps_rev/wps_2019/data/wp19e06.pdf
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    Citations

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    Cited by:

    1. Nicolas Châtelais, 2022. "Why is inflation rising so little in Japan? [Pourquoi l’inflation augmente-t-elle peu au Japon ?]," Bulletin de la Banque de France, Banque de France, issue 242.
    2. Takushi Kurozumi & Ryohei Oishi, 2022. "A Comparison of Japanese and US New Keynesian Phillips Curves with Bayesian VAR-GMM," Bank of Japan Working Paper Series 22-E-3, Bank of Japan.
    3. McNeil, James, 2023. "Monetary policy and the term structure of inflation expectations with information frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).

    More about this item

    Keywords

    Inflation expectations; Term structure; State-space model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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