Hidden Stagflation (2022)
with Naoki Takayama [Link]
We present evidence that the rise of inflation in Japan since 2014 results from hidden stagflation: the relative prices of durable consumption and ICT investment goods stopped declining, reflecting the technology stagnation and putting inflationary pressure on the economy and; the real side of the Japanese economy has simultaneously started to stagnate even more. We construct a multi-good monetary model accounting for these facts jointly and quantify the impact of the technology stagnation on the aggregate inflation rate. We develop a new sign restriction approach to construct informative lower bounds of the impact of the technology stagnation on long-run inflation without relying on the exact Euler equation and some of the balanced growth path properties. By using the lower bounds, we find that inflation would be around 0% or negative without the technology stagnation. Moreover, the technology stagnation explains a sizable fraction of the observed slowdown of real GDP and consumption growth. Our findings challenge the conventional view that Japan emerged from long-lasting deflation owing to the unconventional monetary policies.
Finally, we apply our analysis to European countries and uncover the hidden stagflation there as well.
Tech-Driven Secular Stagnation:
Cross-Country Evidence (2021)
with Naoki Takayama [Link]
We investigate the role of technology on the global secular stagnation of average labor productivity (ALP). In the last decade, equipment-specific technological progress has been stagnated significantly across developed countries, reflected in the movement of the relative equipment prices. Using a multi-capital growth model, we quantify the effect of the equipment-specific technological stagnation on the ALP growth rates. Our analysis shows that the technological stagnation alone accounts for 71% of the declines in the US ALP and a bulk fraction of other developed countries. We discuss several possible causes behind the global equipment-specific technological stagnation.
Anchoring Inflation Expectation (2020)
with Christiano [Link]
We derive the restrictions on monetary policy which guarantee that inflation expectations are anchored (in the sense of rationalizability) in a simple monetary model. The restrictions are stronger than what is required for a globally unique rational expectations equilibrium. Loosely, the restrictions are captured by the idea that policy should ‘lean against the wind, but not too aggressively’.
Downward Nominal Wage Rigidity:
Theory and Evidence
from Japanese Cotton Spinning Industry During WW1
During WWI, the Japanese economy experienced a rapid increase in inflation. Then Japan experienced successive big deflation. The nominal wage rate increased during WWI but was completely stuck after WWI. We study the cotton spinning industry with high-quality data and provide a micro-founded model.