Tokyo Center for Economic Research

The Latest TCER Working Papers

March 2016
Can Guest Workers Solve Japan’s Fiscal Problems?
Sagiri Kitao, Selahattin Imrohoroglu and Tomoaki Yamada

The labor force in Japan is projected to fall from about 64 million in 2014 to near 20 million in 2100. In addition, large increases in aging related public expenditures are projected which would require unprecedented fi scal adjustments to achieve sustainability under current policies. In this paper, we develop an overlapping generations model calibrated to micro and macro data in Japan and conduct experiments with a variety of guest worker and immigration programs under different assumptions on factor prices and labor productivities. Against a baseline general equilibrium transition which relies on a consumption tax to achieve fiscal sustainability, we compute alternative transitions with guest worker programs that bring in annual flows of foreign born workers residing in Japan for 10 years with the share of guest workers in total employment in a range between 4% and 16%. Depending on the size and skill distribution of guest workers, these programs significantly mitigate Japan’s fi scal imbalance problem with a relatively manageable and temporary increase in the consumption tax rate.
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February 2016
Nontraditional Monetary Policy in a Model of Default Risks and Collateral in the Absence of Commitment
Hiroshi Fujiki

We show that a central bank could improve the allocation of resources by delivering the defaulting party’s collateral goods to those who consume the most quickly. We base our discussion on Mills and Reed (2012)’s repo contract model, which shows that the consumption of the lender will be the same whether the borrower is a productive agent or an unproductive agent. We extend their model by considering shocks to the second period of lenders’ lives, which force them to consume within an early stage of the second period of their lives. The shock could make the consumption of lenders vary depending on the timing of transactions in the goods market. We show that a central bank could make the consumption of lenders constant regardless of the timing of transactions in the goods market, and could achieve better resource allocation by using various nontraditional monetary policy tools.
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January 2016
Optimality of the Friedman rule under ambiguity
Eisei Ohtaki

This article reexamines optimality of the Friedman rule in an economy, wherein (i) spatial separation and limited communication create a transactions role for money (ii) banks arise to provide liquidity, and (iii) agents are nonsmooth ambiguity aversion. It is shown that the structure of the set of “second-best” monetary policies crucially depends on the relation between the set of beliefs and the marginal productivity of capital. Especially, in order for the Friedman rule to be suboptimal, it is necessary for the maximum of subjective probabilities of realizing liquidity events to be sufficiently small.
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December 2015
Transmission Channels and Welfare Implications of Unconventional Monetary Easing Policy in Japan
Hiroshi Ugai

This paper examines the effects of the Quantitative and Qualitative Monetary Easing Policy (QQE <2013-current>) of the Bank of Japan (BOJ) by transmission channels in comparison with those of the Comprehensive Monetary Easing Policy (CE) and the subsequent monetary easing policies (2010-2012), based on the event study using financial market data. As for the QQE under normal market conditions, depreciation of foreign exchange rate in the context of portfolio balance channel functions quite strongly, while as for the CE, signaling channel through the commitment and credit easing channel at the dysfunctional markets work. The direct inflation expectation channel is weak for both QQE and CE, although the QQE has adopted various ways to exert a direct and strong influence on inflation expectation. It can be conjectured that the gradual rise in inflation expectation comes mainly from other channels like the depreciation of the yen. The most crucial characteristic of the QQE is to maximize the potential effects of easing policy by explicitly doubling and later tripling the purchased amount of JGBs and then the monetary base proportionally. The amount of JGB purchases by the BOJ surpasses the issuance amount of JGBs, thereby reducing the outstanding amount of JGBs in the markets. Shortage of safety assets would increase the convenience yield, which itself would reduce the economic welfare and not permeate the yields of other risky assets theoretically. This paper then examines the impact of reduction in JGBs on yield spreads between corporate bonds and JGBs based on money-in-utility type model applied to JGBs, and finds that at least severe scarcity situations of JGBs as safe assets are avoided, since the size of Japan’s public debt outstanding is the largest in the world. Even so, the event study shows no clear evidence that the decline in the yield of long-maturity JGBs induced by the QQE permeates the yields of corporate bonds. Recently demands for JGBs have been increasing from both domestic and foreign investors as collaterals after the Global Financial Crisis and from financial institutions that have to correspond to strengthened global liquidity regulation, while the Government of Japan is planning to consolidate the public debts. These recent changes as well as market expectation for future path of JGB amounts should also be taken account of to examine the scarcity of safe assets in case of further massive purchases of JGBs.
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November 2015
Conservatism and Liquidity Traps
Taisuke Nakata and Sebastian Schmidt

In an economy with an occasionally binding zero lower bound (ZLB) constraint, the anticipation of future ZLB episodes creates a trade-off for discretionary central banks between inflation and output stabilization. As a consequence, inflation systematically falls below target even when the policy rate is above zero. Appointing Rogoff’s (1985) conservative central banker mitigates this deflationary bias away from the ZLB and enhances welfare by improving allocations both at and away from the ZLB.
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October 2015
Multiplier Impacts and Emission Reduction Effects of Joint Crediting Mechanism: Analysis with a Japanese and International Disaggregated Input-Output Table
Makoto Sugino, Minoru Morita, Kazuyuki Iwata and Toshi H. Arimura

The reduction of emissions from developing countries is essential in tackling climate change. The Clean Development Mechanism has been effective but criticized by various parties. In response, the Japanese government has proposed the Joint Crediting Mechanism (JCM). Using the 2010 Japanese domestic and the 2005 Asian international input-output tables, we disaggregate the automobile industry and other electrical devices and parts industry to capture hybrid vehicles and solar panels. Moreover, we add the wind turbine industry and the geothermal turbine industry. In evaluating the JCM, we find that the multiplier impacts of hybrid vehicles, wind turbines and air conditioners are high, whereas boilers and solar panels produce smaller effects. In contrast, the results for the employment effects show that the coke dry quenching plants and lighting equipment create more jobs. We also estimate the emission reduction from the JCM. Taking into account the lifetime of each product/technology and country-specific emission coefficients, we find that lighting equipment’s emission reductions are the greatest, whereas washing machines’ reductions are the least. Thus, it is important to choose the technologies/items suitable for the JCM by balancing their economic and reduction effects. The government must assess various technologies/items before determining the eligibility of each technology/item.
[Click for the pdf]

September 2015
Fiscal Cost to Exit Quantitative Easing: The Case of Japan
Hiroshi Fujiki and Hajime Tomura

This paper simulates the cash flows and balance sheets of the Bank of Japan (BoJ) before and after exiting from Quantitative and Qualitative Monetary Easing (QQE) under various scenarios. The simulations show that the BoJ will record significant accounting losses after exiting QQE. These losses are fiscal costs for the consolidated Japanese government as they represent increased interest expenses to the public and will arise because the BoJ will acquire a large amount of Japanese government bonds at very low interest rates during QQE, whose interest payments will then be insufficient to cover interest expenses on excess reserves after exiting QQE. Moreover, any cumulative accounting losses will ensure the BoJ’s net asset position remains negative for a sustained period of time. We also find that the BoJ’s accounting losses will increase with the duration of QQE and the interest rate elasticity of banknote demand, and decrease if the BoJ conducts tapering following the ending of QQE. Finally, the effect of tapering will be significantly stronger if there is no safety channel for the long-term interest rate.
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16. March 2016

[News] CALL FOR PAPERS, 17TH TCER ANNUAL MACRO CONFERENCE

We are pleased to inform you that the 17th TCER Macro Conference will be held at the Mercury Tower on Hitotsubashi University’s Kunitachi Campus on Saturday-Sunday, November 7-8, 2015. 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,
The Institute of Social and Economic Research of Osaka University.

The deadline of submission is Sunday, August 2, 2015 (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 Sunday, October 4, 2015 (Japan time). We will inform you of our decision on or around Sunday, September 6, 2015.

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 (Hitotsubashi University)
Yoshiyasu Ono (Osaka University)
Masaya Sakuragawa (Keio University)
Tsutomu Watanabe (University of Tokyo)

Program Committee Members (to whom 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
Yuki Teranishi (Keio University) yukitera@fbc.keio.ac.jp

12. June 2015

[News] Call for Papers: East Asian Game Theory Conference 2015 (EAGT2015)

We are pleased to inform you the paper call of East Asian Game Theory Conference 2015 (EAGT2015) as follows.

East Asian Game Theory Conference 2015 (EAGT2015)
Place: Waseda Campus, Waseda University
Dates: August 24-26, 2015
Website for the conference: http://eagt2015tokyo.blogspot.jp/

Please find the details for paper submission at the website.

Important Dates:
May 20: Deadline for abstract submission.
June 5: You are informed whether your paper has been accepted.
June 15: Preliminary program is available.
July 1: Deadline for regular registration.
July 31: Deadline for late registration.
August 24-26: Conference.

Hope to see many participants there!

13. April 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