We build a computable OLG model with monetary growth to calculate the optimal level of inflation rate for Japan, and to study policy reforms make any quantitative impacts on it. Four main results were obtained: (i) the optimal inflation rate for Japan is calculated around 1.0%; (ii) the calculated underlying inflation rate is about 9% under the present Japanese economic and fiscal situation; (iii) to prevent high inflation, fiscal reconstruction needs to be implemented; and (iv) if fundamental fiscal reform is conducted, the optimal inflation rate might be achieved. These results are very robust to calibration.
ASJC Scopus subject areas
- Economics and Econometrics