Deflation raises the real burden of repaying fixed-rate debt. Japan has recently experienced a long deflation.
a. Plot the percent change from a year ago of consumer prices in Japan (FRED code: JPNCPIALLQINMEI) and discuss the long-term patterns of inflation and deflation. (Turn off the recession bars.)
b. Plot on a new graph the percent change from a year ago of the GDP deflator in Japan (FRED code: JPNGDPDEFQISMEI). How does it compare with the post-1994 evolution of consumer prices? (Turn off the recession bars.) (Hint: The GDP deflator is a price index for all final goods and services produced domestically. It is a broader measure than the price index for goods and services consumed by households in part (a).)
c. Why might deflation become self-perpetuating?