Fiscal inflation in Japan: the role of unfunded fiscal shocks
Abstract
Abstract We investigate the extent to which fiscal factors have contributed to inflation in Japan over the past four decades. Despite sustained fiscal expansion and rising debt since the 1990s, inflation remained low until recent years. Using the medium-scale DSGE model developed by Bianchi et al. (Q J Econ 138(4):2127–2179, 2023), we estimate the model with Japanese data and find that, in contrast to the U.S. case, unfunded fiscal shocks are not the main drivers of inflation in Japan. Instead, real demand and supply shocks, along with accommodative monetary policy, have played more significant roles in shaping inflation dynamics.
Fields of Study & Subjects
Monetary Policy and Economic Impact
Fiscal Policies and Political Economy
Global Financial Crisis and Policies
Publication details
- Journal / source
- Japanese Economic Review
- Publisher
- Springer Science and Business Media LLC
- Volume
- 77
- Issue
- 4
- Pages
- 729-761
- Publication date
- 6 April 2026
- Language
- EN