Some thoughts on Japan’s experience with unconventional monetary policy
Alan Ahearne NUI Galway Presentation at the GIC Central Banking Series, Dublin Conference 29 September 2016
A timeline of monetary policy actions in Japan
Inflation continues to undershoot 2% target
Transmission channels
Recent movements in the yen frustrating BOJ’s efforts
Transmission mechanism of QQE, in theory, but BOJ concerned about side-effects • Adaptive expectations. • Effect of flattened yield curve on banks’ and insurance companies’ profitability. • BOJ already owns about one-third of JGBs -eventually run out of bonds to buy?
Concerns about cumulative damage to Japanese banks
“QQE with Yield Curve Control”
• BOJ meeting 20-21 Sept 2016. • Commitment to overshoot 2% inflation target for an unspecified time. • Keep short-term policy rates at -0.1%. • Peg the yield on 10-year JGBs at around zero for the foreseeable future.
Time for helicopter money?
• Significantly negative equilibrium real interest. – Demographics, productivity.
• Boost AD to decisively shift expectations. • Explicit monetary financing of expansionary fiscal policy.
Thank you