Dev

Ahh, so either policy failure, or an admission that we just aren’t very good at picking turning points and so are being conservative with our growth forecasts!

You’ll like this then 😉

http://www.ft.com/cms/s/0/c87cf658-954c-11e2-a4fa-00144feabdc0.html#axzz2QYvHaILJ

The short term 😉

How long can an output gap persist for?

Indeed, if they were just saying “we want a 2% inflation target instead of a 0% inflation target – and given we lack credibility we’ll ramp things up so you believe us” that would be fine.

But they are specificially saying they want, and need, more monetary easing. If your “output gap” is already closed this isn’t really appropriate …

The distinction is pretty significant, it will be interesting to see where all this goes.

From what I have read about the motivations for the BOJ’s actions, its goal is increased inflation.

Therefore, surely Japan’s low unemployment rate is a positive for the goal, not a negative.

This is because a relatively large pool of unemployment means monetary or fiscal expansion would have some work to do before shifting inflation expectations to the point where people prefer to spend rather than save or pay down debt.

And Japan’s demographics creates even more headwind, so the people there need a lot of persuasion that the government is going to fuel (modest) inflation, come hell or high water!

As a useful thought experiment, and a way of reducing some other explanations to typical theory!

And for countries that have experienced large shocks, some type of multiple eqm argument could well be true – it just needs to be fully articulated is all 😉