In this paper, we estimate “inflation expectations curve” – a term structure of inflation expectations – combining forecast data of various agents. We use a state-space model which considers consistency among expectations at different horizons, and for relationships between inflation rate, real growth rate and nominal interest rate. We find that the slope of the curve in Japan is positive in almost all periods since the 1990s. In addition, looking at the estimated inflation expectations in time series, the inflation expectations at all horizons rose in the mid-2000s and from late 2012 to 2013, after the downward trend from the early 1990s to the early 2000s. Short-term inflation expectations in particular have tended to shift upwards since the launch of Quantitative and Qualitative Monetary Easing, while being affected by fluctuations in the import price.
In the countercyclical capital buffer regime of the Basel III framework, the credit-to-GDP ratio is proposed as a guide to adjusting capital requirements. To date, the effectiveness of the credit-to-GDP guide has not been fully comprehended. We assess the effectiveness of the credit-to-GDP ratio as a guide to implementing counter-cyclical capital requirements by using a simple macroeconomic model. We show the results that the credit-to-GDP ratio is not an effective guide during a recession. A slowdown in aggregate output—the denominator of the credit-to-GDP ratio— requires the authorities to return the capital requirements near to its level in normal times even though the economy is still in a recession. This limits improvement in the supply of funds to the production sector and subsequently leads to an adverse reaction in real economic activity. The results imply possible drawbacks of the countercyclical capital buffer regime.
In this paper, we clarify whether monetary and fiscal policies, including those by consolidated governments such as by the European Union (EU), can affect the natural interest rate using New Keynesian models. First, when the modified New Keynesian Phillips curves are flat, we find that the Fisher equation easily holds empirically. However, the effects of monetary and fiscal policies, including those by consolidated governments such as the EU, on the natural interest rate are unclear. In contrast, when the modified New Keynesian Phillips curves are transitioning from being flat, the effectiveness of these policies on the natural interest rate increases. However, the Fisher equation is more difficult to hold empirically. Second, when the modified Intertemporal Substitution (IS) curves are not flat, these policies, as short-term nominal demand shocks, can affect the natural interest rate as the long-term equilibrium real interest rate. In contrast, when the modified IS curves become flat, although the short-term nominal monetary and fiscal policies are still effective, we possess limited or occasionally no effective ability of monetary and fiscal policies for affecting the natural interest rate. This is because the elasticity of these policies to the natural interest rate approaches zero.