Vol.7, No.1 / April 1989

Alternatives of Disinflation and Stability Policy - Costs, Efficiency and Implementability: A Comparison Between Japan and West Germany

Helmut M. Wagner

This paper aims to explain the differences in macroeconomic performance between Japan and West Germany with respect to disinflating and stabilizing the economy after the two oil price shocks. The main causal factors derived are differences (a) in the timing of the disinflation policies, and (b) in labor market flexibility. Besides, there were also other factors, such as demographic, structural and external ones, which have played a role. The author argues that the macro-costs of shock absorption could have been reduced in both countries by implementing some institutional supplements, such as wage indexation or (tax-based) incomes policy.

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