Understanding Post-Pandemic Inflation in Japan and the U.S.:
A Narrative Sign Restriction Approach
March 5, 2026
Kaori Ochi*
Abstract
Following the COVID-19 pandemic, the surge in inflation which defined its aftermath created a heightened interest amongst academics and policy makers to identify the structural factors of inflation dynamics. Against this backdrop, this paper uses a structural vector autoregression (SVAR) with narrative sign restrictions to characterize how the inflation episode of the COVID-19 pandemic compared across Japan and the U.S. The findings are threefold: (1) Japan and the U.S. share similar cyclical patterns in the sense that the initial inflation run-up was driven by supply and global shocks, followed by pent-up demand factors, which ultimately led to inflationary pressures from labor market tightening shocks, (2) labor market tightness shows the non-negligible contributions on inflation for both countries, and (3) narrative sign restrictions are informative as a strategy for the identification of structural shocks.
- JEL classification
- C32, E31
- Keywords
- Inflation, structural vector autoregression, labor market tightness, narrative sign restrictions
The author thanks Kosuke Aoki, Ichiro Fukunaga, Yoshihiko Hogen, Daisuke Ikeda, Sohei Kaihatsu, Naoya Kato, Takuji Kawamoto, Takuji Kondo, Takushi Kurozumi, Koji Nakamura, Mototsugu Shintani, Tomohiro Sugo, and Tomoyuki Yagi for their helpful comments on this paper. Any remaining errors are the author's own. The views expressed in this paper are those of the author and do not necessarily represent those of the Bank of Japan.
- *Research and Statistics Department, Bank of Japan
E-mail : kaori.ochi@boj.or.jp
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