- Article in 1998: If the Bank of Japan adopts the inflation target of 4 percent for 15 years, it can create inflation expectation and escape from deflation.
NYT blog in November 2008: No matter how much Japan increases the monetary base now, expectations of future money supplies won’t move if people believe that the Bank of Japan will move to stabilize the price level as soon as the economy recovers.
Interview with the Yomiuri Shimbun in January 2009 (in Japanese): The Fed should make the inflation target of 4 percent for 15 years.
Rolling Stone in January 2009: There's no realistic prospect that the Fed can pull the economy out of its nose dive.
NYT blog in March: once you’ve pushed the short-term interest rate down to zero, money becomes a perfect substitute for short-term debt. And any further increase in the money supply therefore displaces an equal amount of debt, with no effect on anything.
Interview with VOICE in April (in Japanese): The BoJ should adopt the inflation target of 4 percent for 15 years.
1 Comments:
I believe Krugman's comments are not necessarily contradictory.
My understanding of Krugman's Liquidity Trap is that the BoJ should target an inflation rate for an extended period of time so that there is an expectation with consumers that inflation will rise and thus act in accordance with this expectation by consuming. In other words a self-fulfilling prophecy.
At the same time Krugman also says that as soon as interest rates hit zero, pumping liquidity into the system is not going to fix the situation.
Therefore the rise in inflation would solely be the result of the commitment of the bank to maintain a level of inflation without necessarily doing anything to the money supply.
Practically speaking it would be difficult to have a credible commitment without any action. Quantitive easing would be useful to support the 'credible commitment'.
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