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Are Household Inflation Expectations Anchored in Japan?

July 9, 2015
Koichiro Kamada*1
Jouchi Nakajima*2
Shusaku Nishiguchi*3

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Abstract

This paper investigates household inflation expectations and discusses the central bank's ability to anchor them. We use micro-data from a household survey on inflation expectations and fit a normal inverse Gaussian distribution to the data to remove the distortions included in them. The underlying distribution thus obtained is examined to characterize household inflation expectations, particularly from the term-structure point of view. The analysis indicates that long-term expectations are immune to actual price developments, while short-term expectations are easily affected by actual inflation. The paper also investigates to what extent household inflation expectations have been influenced by the Bank of Japan's policy stance. The analysis shows that the price stability target and the quantitative and qualitative monetary easing, introduced by the Bank in 2013, contributed to strengthening the anchor of inflation expectations. Nonetheless, the anchor still needs to be improved so that household expectations are invulnerable to any disturbances in actual inflation rates.

JEL Classifications
E31, E52, E58

Keywords
inflation expectations; term structure; expectations dispersion; inflation target; inflation anchor; quantitative and qualitative monetary easing

We would like to thank the staff of the Bank of Japan for their helpful comments. The opinions expressed here, as well as any remaining errors, are those of the authors and should not be ascribed to the Bank of Japan or the Monetary Affairs Department.

  •   *1 Monetary Affairs Department, Bank of Japan
    E-mail : kouichirou.kamada@boj.or.jp
  •   *2 Monetary Affairs Department, Bank of Japan (currently International Department)
    E-mail : jouchi.nakajima@boj.or.jp
  •   *3 Monetary Affairs Department, Bank of Japan (currently University of Oxford)
    E-mail : shusaku.nishiguchi@economics.ox.ac.uk

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