Monetary–Fiscal Policy Interactions and Inflation Dynamics

Insights From Japan

Bibliographic Data

ID21512770
AuthorsNobuhiro Abe (0000-0002-1635-8256, Bank of Japan Chuo‐ku Tokyo Japan), Takuji Fueki (Graduate School of Economics, Hitotsubashi University Hitotsubashi University Kunitachi Tokyo Japan, corresponding author), Sohei Kaihatsu (0000-0002-0141-7719, Bank of Japan Chuo‐ku Tokyo Japan)
Year2026
Publication date2026-04-15
Open AccessYes
TypeARTICLE
VenueOxford Bulletin of Economics and Statistics (JOURNAL)
Journal identifiersISSN: 0305-9049 • E-ISSN: 1468-0084
PublisherWiley (PUBLISHER • GB)
DOI10.1111/obes.70072
OpenAlexW7154504407
LanguageEN
References cited36

This study addresses the role of monetary and fiscal policy stances in inflation dynamics in Japan. We estimate a Markov‐switching dynamic stochastic general equilibrium model with changes in the monetary–fiscal policy interaction. Focusing on the prolonged deflation observed in Japan, we find that Japan's policy regime was characterized by a combination of passive monetary and fiscal policies. We quantitatively clarify that this plays a substantial role in propagating negative demand shocks. However, after the introduction of unconventional monetary policy, it switched from a passive to an active regime. We show that policy regime changes have helped push up inflation

Deflation · Dynamic stochastic general equilibrium · Fiscal policy · General equilibrium theory · Monetary policy · Economic theories and models · Fiscal Policies and Political Economy · Monetary Policy and Economic Impact

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