Monetary policy
When 2% is not enough
The rich world’s central banks need a new target
Aug 27th 2016 | From the print edition

金融政策
２％が十分でないなら豊かな世界の中央銀行は新たなターゲットが必要だ。

LIKE other areas of public policy, central banking is prone to fads and fashions. From limits on money-supply growth to pegging exchange rates, orthodoxies wax and wane. Yet the practice of inflation-targeting has proved remarkably long-lived. For almost three decades, central bankers have agreed that their best route to stabilising an economy is to aim for a specific target for inflation, usually 2% in advanced economies and a little higher in emerging ones. 

prone：する傾向がある
fads：一時的な流行
orthodoxies：伝統的な考え
wax and wane：盛衰する



This orthodoxy is still intact in many emerging economies where inflation is yet to be tamed (see article). But in the rich world the consensus is beginning to fracture. As central bankers gather this weekend for their annual shindig in Jackson Hole, Wyoming, John Williams, head of the San Francisco Fed, has caused a stir by suggesting it is time for a rethink on what central banks should aim for. He is right. 

intact：損なわないで
tamed：管理された
fracture：に亀裂を生じる
shindig：盛大なパーティ

The reason is that the rich world’s central banks are working in a different context from the 1990s, when today’s inflation-targeting doctrine was formed. Then, it seemed that inflation would spend as much time above target as below it. And the “natural real rate of interest”—the inflation-adjusted price that balances the supply of, and demand for, savings in a full-strength economy—was as high as 3.5%. But inflation has been below the central bankers’ target for years. And the underlying real natural rate of interest has fallen to 1% or lower, probably because population ageing has boosted saving even as lower expectations of growth have cut investment (see article). 

This matters because low inflation and a low natural interest rate limit the effectiveness of central bankers’ traditional policy lever: setting short-term interest rates. Since nominal interest rates are the sum of real rates and inflation, the rich-world central banks cannot, under today’s regime, expect their policy rates to rise much higher than 3% (the 2% inflation target plus a 1% real rate). That leaves very little room to cut when the next recession strikes. In the three most recent recessions the Fed slashed rates by 675 basis points (hundredths of a percentage point), 550 basis points, and 512 basis points. 

Fear of future impotence is the main cause of today’s misgivings over a low inflation target. But there are other drawbacks with the current regime. First, a target for annual inflation gives the central bank no leeway to make up for periods during which inflation has been too high or too low. If central bankers could credibly promise that they would allow a burst of catch-up inflation, they might be more successful at boosting too-low inflation today. Second, when supply shocks such as a sudden rise or fall in the oil price send inflation and economic growth in opposing directions, central bankers face a tricky choice of which to respond to. 

impotence：無力
misgivings：疑念・不安
drawbacks：欠点・障害
leeway：ゆとり
credibly：確実に

How might these problems be fixed? One possibility is simply to raise the inflation target to, say, 4%. Credibly enacted, that ought to alleviate the risk of impotence. If investors and consumers believe inflation will reach 4%, nominal interest rates should eventually rise to 5% or so even if real rates stay low. But rich-world central banks have undershot their targets for so long they may struggle to persuade the public to expect higher inflation. And a higher target would still leave central banks with a dilemma when economic growth and inflation diverge. Neither would it make up for big misses. 

enacted：繰り返して起こる
alleviate：緩和する
diverge：分岐する

木曜日。今日はこれまで。インフレがちっとも起こらない。２％が今までの目標だが、もっと上げてもいいといっている。今のままだと、経済が変化した時に金利を操作する幅がない。インフレと名目金利を合わせたものが実質金利だ。今の状態では経済が変化した時にインフレがないので実質金利を操作する幅がないので、その対応が取れない。

昨日は海野塾と懇親会があった。今日の昼は昔の仲間の加藤さんとの会食がある。今日は来週のテーマの内容の整理と本を書くことができる。最近は本を書くのが楽しくなってきているのでいいことだ。ではまた明日。