Tokyo Center for Economic Research

The Latest TCER Working Papers

March 2015
Time varying pass-through: Will the yen depreciation help Japan hit the inflation target?
Etsuro Shioji

There is a growing recognition that pushing up the public’s inflation expectation is a key to a successful escape from a chronic deflation. The question is how this can be achieved when the economy is stuck in a liquidity trap. This paper argues that, for Japan, the currency depreciation since the late 2012 could turn out to be useful for ending the country’s long battle with falling prices. Prior studies have suggested that household expectations are greatly influenced by prices of items that they purchase frequently. This paper demonstrates that the extent of exchange rate pass-through to those prices, once near-extinct, has come back strong in recent years. Evidence based on VARs as well as TVP-VARs indicates that a 25% depreciation of the yen would produce a 2% increase in the prices of goods that households purchase regularly.
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March 2015
Power of Joint Decision-Making in a Finitely-Repeated Dilemma
Kenju Kamei

A rich body of literature has proposed that pairs behave significantly differently from individuals due to a number of reasons such as group polarization. This paper experimentally compares cooperation behaviors between pairs and individuals in a finitely-repeated two-player public goods game (continuous prisoner’s dilemma game). We show that pairs contribute significantly more than individuals to their group accounts. Especially when two pairs are matched with each other for the entire periods, they successfully build long-lasting cooperative relationships with their matched pairs. Our detailed analyses suggest that the enhanced cooperation behavior of pairs may be driven by (a) the mere fact that they have partners as decision-making units when they make decisions, (b) group polarization – those who initially prefer to contribute smaller amounts are more affected by the partners in their pairs, and (c) stronger conditional cooperation behavior of pairs to their matched pairs.
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February 2015
How does hyperinflation shock the economy?: Panel VAR Approach
Jun-Hyun Ko and Hiroshi Morita

Using 48 country data for the period 1800-2010, we empirically investigate the effect of hyperinflations on the public debt, the primary surplus, and the real economy. Estimating a panel vector-autoregressive (VAR) model, we find that (i) hyperinflations permanently reduce public debt-to-GDP ratios; (ii) the reduction is closely related to the increase in the primary balances in response to hyperinflations; (iii) however, hyperinflations accompany dampening effects on the real economy, reducing GDP.
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January 2015
Effects of the Great East Japan Earthquake on Subjective Well-Being
Takuya Ishino, Akiko Kamesaka, Toshiya Murai and Masao Ogaki

Using a large panel data set that samples over 4000 Japanese, we analyze changes in people’s subjective well-being (happiness) and altruistic worldview before and after the Great East Japan Earthquake. As a result we find that 1) more people replied that their happiness improved after the earthquake than said it worsened, and also that 2) many more Japanese people became more altruistic since the earthquake, even in the most affected areas. One possible interpretation of these results is that an increase in altruism due to the earthquake spurred people to give to charity, which in turn increased their happiness. Our regression analysis yields results that are consistent with this story.
[Click for the pdf]

December 2014
Reputation and Liquidity Traps
Taisuke Nakata

Can the central bank credibly commit to keeping the nominal interest rate low for an extended period of time in the aftermath of a deep recession? By analyzing credible plans in a sticky-price economy with occasionally binding zero lower bound constraints, I find that the answer is yes if contractionary shocks hit the economy with sufficient frequency. In the best credible plan, if the central bank reneges on the promise of low policy rates, it will lose reputation and the private sector will not believe such promises in future recessions. When the shock hits the economy sufficiently frequently, the incentive to maintain reputation outweighs the short-run incentive to close consumption and inflation gaps, keeping the central bank on the originally announced path of low nominal interest rates.
[Click for the pdf]

December 2014
Post-Crisis Slow Recovery and Monetary Policy
Daisuke Ikeda and Takushi Kurozumi

In the aftermath of the recent financial crisis and subsequent recession, slow recoveries have been observed and slowdowns in total factor productivity (TFP) growth have been measured in many economies. This paper develops a model that can describe a slow recovery resulting from an adverse financial shock in the presence of an endogenous mechanism of TFP growth, and examines how monetary policy should react to the financial shock in terms of social welfare. It is shown that in the face of the financial shocks, a welfare-maximizing monetary policy rule features a strong response to output, and the welfare gain from output stabilization is much more substantial than in the model where TFP growth is exogenously given. Moreover, compared with the welfare-maximizing rule, a strict inflation or price-level targeting rule induces a sizable welfare loss because it has no response to output, whereas a nominal GDP growth or level targeting rule performs well, although it causes high interest-rate volatility. In the presence of the endogenous TFP growth mechanism, it is crucial to take into account a welfare loss from a permanent decline in consumption caused by a slowdown in TFP growth.
[Click for the pdf]

12. March 2015

[News] CALL FOR PAPERS, 16TH ANNUAL MACRO CONFERENCE

We are pleased to inform you that the 16th Macro Conference will be held at Keio University’s Mita Campus on Saturday-Sunday, November 29-30, 2014. If you are interested in submitting a paper to the conference, please send your paper by email as an attached file to all the four program committee members shown below. There will be no particular topic for this conference, and any macroeconomics-related paper will be welcome, whether it is theoretical or empirical.

The conference will receive financial supports this year from the Tokyo Center for Economic Research (TCER), Faculty of Economics, Keio University, the UTokyo Price Project, Research Center for Economic and Social Risks, Hitotsubashi University, Research Grant: “Japan’s international adjustments under the aging and population decline”, and the Institute of Social and Economic Research of Osaka University.

The deadline of submission is Sunday, August 31, 2014 (Japan time). Full papers are preferred but a 10-page abstract is also acceptable. Also, please suggest two individuals as designated discussants, although it is not necessary to contact them in advance. In either case, please make sure to send your full paper to the four program committee members and to the designated discussant by Friday, October 31, 2014 (Japan time). We will inform you of our decision on or around Tuesday, September 30, 2014.

We will pay the travel and lodging expenses of all paper presenters, designated discussants, and chairpersons. However, we may not be able to pay for the travel expenses of those coming from abroad.

We look forward to receiving many interesting submissions.

With best wishes,

Co-Sponsors/Organizing Committee
Naohito Abe, Tokuo Iwaisako (Hitotsubashi University)
Yoshiyasu Ono (Osaka University)
Masaya Sakuragawa (Keio University)
Tsutomu Watanabe (University of Tokyo)

Program Committee (to which submissions should be sent)
Kosuke Aoki (University of Tokyo) kaoki@e.u-tokyo.ac.jp
Kazuo Ogawa (Osaka University) ogawa@iser.osaka-u.ac.jp
Etsuro Shioji (Hitotsubashi University) shioji@econ.hit-u.ac.jp
Yasuo Hirose (Keio University) yhirose@econ.keio.ac.jp
(Please send your paper to all four of us, simultaneously.)

20. June 2014

[News] Call for papers: Unconventional Policy and Emerging Economies

TCER (Tokyo Center of Economic Research) and Institute of Developing Economies (IDE-JETOR) plan to have a conference on “The Effects of Unconventional Monetary Policy on Emerging Economies”. As the theme shows, our main interest is to see what impacts recent unconventional monetary expansion in developed countries had on various emerging economies. We accept any paper that analyzes the related topics. The conference will be held at the University of Tokyo in March 2015. If you are interested in contributing a paper for the conference, send your first draft to sfukuda2@e.u-tokyo.ac.jp by the end of November 2014.

A special issue of the Developing Economies (DE) on the conference theme will be published under the Guest Editorship. Authors whose papers are presented at the conference are supposed to submit their papers to the DE special issue. Papers submitted for this special issue will undergo the normal journal reviewing process.

DE is an academic journal published by WILEY-BLACKWELL and has ISI impact factor. Its details are available at

http://www.ide.go.jp/English/Publish/Periodicals/De/backnumber.html

April 21, 2014
Shin-ichi Fukuda, Professor, The University of Tokyo, Japan
Etsuro Shioji, Professor, Hitotsubashi University, Japan

20. April 2014