After Japan introduced a negative policy interest rate in 2016, market expectations for inflation over the medium term fell immediately. This can be seen by assessing how prices for Japanese bonds with embedded deflation protection responded to the policy announcement. The reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels. Japan’s experience also illustrates the desirability of taking preemptive steps to avoid the zero interest rate bound
Because of the long period of low inflation in Japan, its experience provides an interesting example of the impact of negative monetary policy rates when inflation expectations are well-anchored at very low levels. We examine movements in yields on inflation-indexed and deflation-protected Japanese government bonds to gauge changes in the market’s inflation expectations from the BOJ moving to negative policy rates. Our results suggest that this movement resulted in decreased, rather than increased, immediate and medium-term expected inflation. This therefore suggests using caution when considering the efficacy of negative rates as expansionary policy tools under well-anchored inflation expectations.
Mark Carney says we are not going to be happy with long term deflation, no matter how slight. Mark thinks an autonomous, global reserve currency helps, but don't like bitcoin.
What are we getting? Yellow Vesters, Hong Kong, Bexiters protesters, and a colorful Congress. One thing these groups all have in common? They never voted for the stuff we bought with all that debt. They have no moral duty to pay it, no voter's regret to keep them in line.
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