Monetary Factors and Inflation in Japan

Katrin Assenmacher-Wesche, Stefan Gerlach and Toshitaka Sekine

Issue
2007-13

Pages
35

JEL classification
C22, E3, E5

Keywords
spectral regression, frequency domain, Phillips curve, quantity theory

Year
2007

Recently, the Bank of Japan outlined a two perspectives approach to the conduct of monetary policy that focuses on risks to price stability over different time horizons. Interpreting this as pertaining to different frequency bands, we use band spectrum regression to study the determination of inflation in Japan. We find that inflation is related to money growth and real output growth at low frequencies and the output gap at higher frequencies. Moreover, this relationship reflects Granger causality from money growth and the output gap to inflation in the relevant frequency bands.