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The Cause of Disinflation
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Jang C. Jin, World Economics, December 2019
An empirical model estimates the effects of central bank independence and increasing globalisation on recent disinflation. The model that includes the globalisation measure is found to fit the data better than the one with central bank independence alone. Using pooled sample periods gives further information on recent disinflation that was largely caused by globalisation, and partly by central bank independence. The results suggest that many industrialised countries, including the United States, benefited from globalisation lowering inflation rates during the late twentieth century.
China’s Monetary Policy Functions from the Core Inflation Perspective
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Yu Li Zhu & Lu Chang Rong, World Economics, September 2019
Based on the open-economy new Keynesian model, this paper studies the influence of core inflation on the central bank’s monetary policy reaction rules by optimising the multi-target welfare loss functions, and draws three conclusions. Sustainable balance of payments should be considered as a goal rather than a tool for monetary policy. The central bank should focus more on core inflation than normal inflation in its daily operations. An authoritative core inflation sequence should be established as a focal point in the policymaking process. In addition, we emphasise that the central bank should accurately judge the impacts of real exchange rate changes, and adjust how frequently it intervenes in interest rates.
Deflation? What Deflation? Statistical Origins of Japan’s Declining Price Levels
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Masanaga Kumakura, World Economics, June 2015
Although Japan’s CPI is often criticized for potential upward bias, it deals with improvements in the quality of individual goods in ways that make the statistical inflation rate much lower than actual price changes. Moreover, the quantitative importance of this effect has risen progressively since the early 2000s due to increased weights of technology-intensive electronic products and changes in the method of adjusting their prices for quality improvement. Once this artificial effect is taken into account, it becomes questionable that Japan’s recent deflation has been so serious as to justify the adventurous monetary policy currently implemented by its central bank.

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