The new Keynesian Phillips Curve for Japan — an Empirical Analysis —

The aim of this paper is to conduct empirical research on Japanese inflation dynamics through GMM estimations by applying the modified Woodford (2003)-type New Keynesian Phillips Curve (NKPC) which incorporates staggered price and wage setting, by using quarterly data spanning the period 1980:1 to 2010:4. The result of estimation leads our empirical study to conclude that the backward-looking component tends to have a stronger impact on inflation dynamics than the forward-looking one. Further, the investigation of flattening of the NKPC implies that it is rather flat, and that downward nominal wage rigidity is related to this in recent years. Thus, the conduct of monetary policy by the central bank faces a certain difficulty in recent years.