“I think I can say we are half way,” he says. “The latest statistics show that the inflation rate has reached 0.9 per cent. But there is still a long way to go.” He says the bank intends to achieve the 2 per cent inflation target and maintain it in a stable manner. “It’s no good just to touch on the 2 per cent and then go down to 1 per cent or less,” he says.
…
This has led to an upward shift in inflation expectations, which he notes have been “rising steadily but moderately. Many indicators show that expected inflation may be 1-1.5 per cent.”
“We envisage basically three channels through which the quantitative and qualitative easing would affect the economy. The first is the massive amount of purchases of Japanese government bonds, which would suppress long-term interest rates* over the entire yield curve. The second channel is a ‘portfolio rebalancing effect’. Banks, companies and households would shift their portfolios, now dominated by fixed income assets, towards riskier assets, including lending to the economy. The third channel is shifts in expectations.”
The implication, then, is that the MPC should do even more. This leads to discussion of what happens after the second year of the new policy. “Our QQE is not time-constrained,” Mr Kuroda responds. “Our guidance is condition-based. So without any new kind of decision, the current QQE can continue until the 2 per cent inflation target is achieved and maintained in a stable manner.”
“The differences for this fiscal year and next are small.” But in fiscal year 2015, the bank expects to reach 1.9 per cent inflation, while market economists expect the rate to stay around 1 per cent. He suggests that the source of this difference might be that the bank thinks that “as the actual inflation rate rises from negative to 0.5 per cent, 1 per cent, 1.5 per cent, and so forth, inflation expectations will also rise gradually”. Market forecasters may doubt this.
Mr Kuroda is not worried. “Raising the inflation rate as well as the inflation expectations from negative to 2 per cent, that is quite challenging. On the other hand, to stop inflation from rising beyond the 2 per cent target, that is less challenging.”
“Actually, deflation started around 1998,” he responds. “But it has been relatively mild. On average, a 0.5 per cent decline in prices year-on-year. Because prices are declining, people just tend to delay expenditures. So we have a continuous demand shortage and the gap has been filled by continuous fiscal stimulus.
“Second, holding cash became relatively profitable. So corporations accumulated cash. At this stage, they hold nearly 50 per cent of GDP in cash. And they don’t invest much. In the past 10 to 15 years they invested less than their cash flow in physical assets.”
This does not worry Mr Kuroda. “In Japan, in the past 20, 30 years, including the 15-year deflationary period, if you look at wage increases and price increases you find very similar movements. That means that unless wages are rising, prices will not continue to rise, and unless prices are rising, wages will not rise.”
There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately. A return to the conditions of the late 1980s would rejuvenate Japan and help shore up the rest of Asia.
A 2012 study of 45 countries by Thorsten Beck of Tilburg University found that higher lending to firms is associated with higher growth. Higher lending to people is not.
Judge Andrew Napolitano takes issue with Pope Francis’ critique of capitalism, laid out in his recent encyclical. “Thank God, so to speak, that his teaching authority is limited to faith and morals, because in matters of economics, he is wide of the mark,” Napolitano writes. I plead ignorance on the relationship between religion and economics, so I’ll gladly defer to Napolitano: “The Pope seems to prefer common ownership of the means of production, which is Marxist, or private ownership and government control, which is fascist, or government ownership and government control, which is socialist. All of those failed systems lead to ashes, not wealth. Pope Francis must know this. He must also know that when Europe was in turmoil in 1931, his predecessor Pius XI wrote in one of his encyclicals: ‘(N)o one can be at the same time a sincere Catholic and a true Socialist.'”
You don’t need to buy that story in both or either cases (I have mixed feelings about it) but it’s just not a story about financial costs. If there’s a problem with the bailouts, it’s precisely that saving the firms rather than letting them die and be replaced by something else is a problem. The money isn’t the issue.
Even so, millions of migrants who have moved to towns and cities can’t benefit from urban welfare, education and health services because the household registration system, known as hukou, classifies them as rural residents.
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Doris Ritzberger-Gruenwald gave up an academic post to try out at the institution in 1988. The Austrian schilling was pegged to the German mark at the time and, she says, “there was nothing to analyze.” A quarter of a century later, she’s the bank’s chief economist and one of a handful of women advising the European Central Bank’s Governing Council on monetary policy. Her current tip: Do nothing.
I was surprised that the council acted so quickly,” Ritzberger-Gruenwald said in the interview. “I would have been careful about tying such a decision to a single number and probably waited until December” when the new economic forecasts she’s been working on are officially published, she said.
We just acted and now we have to see what the impact of that action was,” she said. “If I were to decide, I’d wait and see. We’re getting closer and closer to exhausting our options, so it might be a good idea to keep our powder dry.”
Everybody still believes in the slow, moderate recovery but I’m beginning to ask myself how much of this is calculated optimism,” Ritzberger-Gruenwald said. “I’m still waiting for the hard facts.”
Until we start seeing monetary policy being discussed without direct reference to interest rates and inflation I believe we´re doomed to stay ‘trapped’.
The failure of monetary policy is not caused by anything central banks are actually doing; it’s caused by central banks’ way of framing what they are doing, and by the rest of us accepting that same framing. The current recession was caused by those (and that includes especially central bankers themselves) who think that central banks use an interest rate as the control instrument. It’s the framing of what central banks do that caused the mess, not anything central banks are actually doing. The social construction of reality is what dunnit!
In fact controlling the money base is exactly what central banks are doing when they undertake “normal” monetary policy. Central bankers might talk about monetary policy in terms of changing interest rates, but what central banks are doing – when they are undertaking what they consider to be “normal” monetary policy – is to control the money base to target a certain level for short-term interest rates.
In that sense there is nothing unconventional about controlling the money base – it is what central banks have always been doing. Many central bankers have just forgot it as they are used to talk about monetary policy in terms of changes in interest rates.
Therefore it is completely meaningless to talk about quantitative easing as being “unconventional” monetary policy. However, what is “unconventional” is when central bankers think that credit policy is monetary policy.
***ispričavam se ako vas je naslov naveo na čitanje jer ste mislili da zastupam neku dušebrižničku ideju gdje HNB financira radni narod u agoniji i slično, ima dovoljno nutcaseova sa takvim idejama i bez mojih helicopter drop zazivanja
In the euro area, the current accommodative monetary policy stance is appropriate, provided disinflationary pressures do not intensify. With underlying inflation falling to very-low levels and set to be well below the ECB’s medium-term objective for inflation due to extensive slack, the ECB should keep the main refinancing policy rate unchanged at least until end-2015. At the same time, it should provide adequate liquidity to the market so that the overnight rate remains close to the deposit rate even if some banks repay in advance funds borrowed via the Long-Term Refinancing Operations (LTRO). Institutional changes should also be considered so that additional non-conventional measures are available if disinflationary pressures were to strengthen or turn deflationary, or if substantial uncertainties were to re-emerge, and these challenges could not be addressed by existing monetary tools. Such measures could include purchases, on a non-discriminatory basis, of government and corporate bonds, and programmes to foster bank lending to the non-financial private sector.
Mr. Praet didn’t rule out what some analysts see as the strongest, and most controversial, option: purchases of assets from banks to reduce borrowing costs in the private sector.“The balance-sheet capacity of the central bank can also be used,” said Mr. Praet, whose views carry added weight as he also heads the ECB’s powerful economics division. “This includes outright purchases that any central bank can do.”
To sum up, taking into account today’s decisions, the economic analysis indicates that we may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on. A cross-check with the signals from the monetary analysis confirms this picture.
Supply-side optimists cannot sit on the fence and pretend the 2008-201X CPI trainwreck never happened. It’s surely more convincing to argue we should take productivity – and inflation – out of macro policy altogether. Set a stable path for nominal incomes and let the supply-side puzzle itself out.
The interesting part:
However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.
Nadam se da nesigurnost vezana za svaki sljedeci sastanak neće stvarati probleme u budućnosti (moje žalovanje zbog diskrecijske MP).
+ projekcije
UPDATE: Pogled na 10godišnju
