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Inflation expectations and monetary policy under disagreements

January 14, 2016
Yoshiyuki Nakazono*

Abstract

Using a wide range of survey data on Japanese inflation outlook, this study examines two types of disagreements regarding inflation expectations and accordingly, presents monetary policy implications. The analysis reveals three key findings. First, information rigidities are determinants of cross-sectional disagreement among not only households but also experts. Second, survey data indicate dissonance regarding the long-run forecasts of inflation rates between the central bank and economic entities, despite the adoption of a 2% inflation target in January 2013 and the introduction of an unconventional monetary policy (QQE) in April 2013. While short- and mid-term inflation forecasts by households are generally close to the 2% target rate, long-term forecasts fail to converge to the target level. Finally, under the two types of disagreements, the private sector's perception about a monetary policy stance does not significantly differ before and after the introduction of the inflation target and QQE. These findings suggest that the policy regime of the monetary policy dose not abruptly change on basis of perception; that is, there is no upheaval in the agents' perception about a monetary policy stance enough to induce a regime change.

JEL Classification
E31; E44; E52; E58

Keywords
disagreement; forecast data; inflation expectations; inflation target; information rigidities; unconventional monetary policy

This paper was presented at the 6th conference on November 26, 2015, jointly organized by Bank of Japan and the University of Tokyo. I thank the discussant, Masahiro Hori, for invaluable inputs and have also benefited from discussions with Shin-ichi Fukuda and participants in the conference. I thank QUICK Corp. for giving us access to panel data on each individual forecast and INTAGE Inc. for their cooperation regarding the online household survey. This research is supported by JSPS KAKENHI (Grant Number 15K17024).

*Yokohama City University
E-mail : nakazono@yokohama-cu.ac.jp

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