Macroeconomics does make progress

Sometimes it seems like macroeconomics never makes any progress.  Fads go in an out of style in an endless cycle: classical, Keynesian, classical, Keynesian, classical, Keynesian, etc.  Beneath the surface, however, progress is steadily occurring.  Today provided one more example.

A few years ago there was a lively debate as to whether negative interest on reserves would be expansionary or contractionary.  Pundits who took a “finance approach” suggested the effects would likely be contractionary, due to their impact on the financial markets.  Market monetarists argued that policies that pay less interest on base money are expansionary, because they reduce the demand for base money.  Today provides another powerful example that the monetary approach to macro is superior to the finance approach, as the yen plunged on news that the BOJ had unexpectedly adopted negative IOR (after dismissing the idea just weeks ago.)  There had been previous experiments in Europe with the same outcome, but some of them were combined with QE.  This was a particularly clean test, in a major economy:

Bank of Japan Governor Haruhiko Kuroda sprung another surprise on investors Friday, adopting a negative interest-rate strategy to spur banks to lend in the face of a weakening economy.

The move to penalize a portion of banks’ reserves complements the BOJ’s record asset-purchase program, including 80 trillion yen ($666 billion) a year in government-bond purchases, which was kept unchanged at the board meeting. By a 5-4 vote, Kuroda led his colleagues to introduce a rate of minus 0.1 percent on certain excess holdings of cash.

Long a pioneer in adopting unorthodox policies to tackle deflation and revive economic growth, the BOJ is now taking a page out of European policy makers’ playbooks in the goal of stoking inflation. The yen tumbled after the announcement, which came after Kuroda just last week rejected the idea of negative rates.

It will be interesting to see if those claiming negative IOR would be contractionary will now admit their error.

PS.  Here’s a FTAlphaville post by Izabella Kaminska from 2012:

If imposed, negative rates would be enforced via the base money market. This could see banks charged for holding excess reserves at the central bank. Which ever way you look at it, the move would ultimately be contractionary rather than expansionary because it would lead to base money destruction, or wider credit destruction as banks hand over credit to cover charges.

HT:  Cameron,  Julius Probst


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51 Responses to “Macroeconomics does make progress”

  1. Gravatar of HL HL
    29. January 2016 at 05:40

    One problem. They pushed back the timeframe for achieving 2% inflation for the second time. Wouldn’t this be failing the “easing to forecast” and “symmetric targeting” tests?

  2. Gravatar of Dan W. Dan W.
    29. January 2016 at 05:55

    Scott,

    I thought Abenomics was working. Yet the news article you link states:

    “The BOJ made its announcement hours after government reports showed the Japanese economy was unexpectedly weak in December, with bigger-than-anticipated declines in industrial production and household spending.”

    You have a funny way of claiming victory.

  3. Gravatar of ssumner ssumner
    29. January 2016 at 06:01

    HL, From the beginning, I’ve said they are likely to fall short of 2%. The actual inflation since 2013 is actually more than I forecast. Given the deflationary global environment, then probably should do even more right now. The point of this post is that when they do act, it works.

    Dan, You are confusing two unrelated issues–as I keep telling you, you are in way over your head on this subject. Did I ever predict that the Japanese data would come in on target?

  4. Gravatar of Ray Lopez Ray Lopez
    29. January 2016 at 06:31

    Sumner: “provides another powerful example that the monetary approach to macro is superior to the finance approach, as the yen plunged on news that the BOJ had unexpectedly adopted negative IOR (after dismissing the idea just weeks ago.)” – what? Please walk us through why the yen falling somehow validates the monetary approach to macro. The jury is still out whether negative IOR will work, don’t you think? Do you think?

  5. Gravatar of Britonomist Britonomist
    29. January 2016 at 06:35

    There are no clean tests in macroeconomics, not without a counter-factual, not without an identical economy you can use as a control.

  6. Gravatar of o. nate o. nate
    29. January 2016 at 06:39

    I also think this move will be expansionary for the Japanese economy, but I’m a bit puzzled why you point to the plunge in the yen as proof of this. I guess the sine qua non would be to see if Japanese NGDP expectations increased. It seems like in the past you usually looked at asset market moves- specifically equity prices and medium to long term rates – to infer these effects. I see the Nikkei up 2.8% on the news, but the 10Y bond yields declining by about 12bps, so a slightly mixed move, but still on balance probably indicating expansionary expectations.

  7. Gravatar of Tom Tom
    29. January 2016 at 06:48

    Scott,
    Why do you think long bonds yields around the world also have come down by so much after this announcement? If it were expansionary long rates should have risen. My personal view is that plenty of bond investors simply believe at this point that central bank actions, especially QE will not work and just cause lower yields. I think they will end up being wrong, but it will take some significant realized inflation and losses to change their minds.

  8. Gravatar of XVO XVO
    29. January 2016 at 08:33

    Speaking of NGDP, where did the Hypermind NGDP prediction go from the sidebar?

  9. Gravatar of ssumner ssumner
    29. January 2016 at 08:49

    Britonomist, A market response to an unexpected policy shock is not a clean test? Really? Have you looked at the interday exchange rate chart for the yen? Just a coincidence? What would be a cleaner test?

    O. Nate, I think everyone agrees that any monetary shock that sharply depreciates a currency is expansionary for NGDP. Even real business cycle proponents would agree with that, wouldn’t they? (And yes, stocks rose too–I have no explanation for bond yields, which are not a reliable indicator of changes in the stance of monetary policy.)

    Tom, I don’t know, but clearly the markets think it will work. Look at stocks and the yen. Bonds have always been an ambiguous indicator, even in the US.

    The standard explanations for bonds in Dornbusch’s overshooting model.

    XVO, We were having problems with the link. There is a link to Hypermind in “Sites I visit” Last time I looked it was just over 3%.

  10. Gravatar of Mikio Mikio
    29. January 2016 at 09:02

    Agree. My main issue is that Kuroda merely tested the waters. The negative rates will be charged only a new excess reserves. Existing excess reserves are at 0%, and required reserves pay 0.1%.

    So, on a net basis, the BOJ is still paying IOR.

    Why should banks put the money to work elsewhere when they get this subsidy risk-free.

    But he took a step in the right direction, yes.

  11. Gravatar of Ignacio Morales Ignacio Morales
    29. January 2016 at 09:18

    Great post, straight to the point.

  12. Gravatar of o. nate o. nate
    29. January 2016 at 09:33

    “I think everyone agrees that any monetary shock that sharply depreciates a currency is expansionary for NGDP”

    I guess that’s true, it just seems using the other indicators is a more direct way to make the point.

    “I have no explanation for bond yields, which are not a reliable indicator of changes in the stance of monetary policy”

    I agree with that, if you take them by themselves. My point was more about looking at them in conjunction with stock prices. I see 2 main reasons stocks can rise: higher profit expectations (which should correlate pretty well with expected NGDP growth), or higher PE ratios (which should be inversely correlated with long-term nominal rates). So that’s why one would look at them together. If stocks jumped and nominal rates didn’t move much (as in this case), one would count that as higher NGDP expectations. I think you’ve said this before.

  13. Gravatar of Britonomist Britonomist
    29. January 2016 at 09:38

    Scott, I thought by ‘test’ you meant actually testing if the policy is effective, not a test of how currency markets react in the short term to unexpected central bank shocks (which is hardly disputed/controversial).

  14. Gravatar of JP Koning JP Koning
    29. January 2016 at 09:40

    “Agree. My main issue is that Kuroda merely tested the waters. The negative rates will be charged only a new excess reserves. Existing excess reserves are at 0%, and required reserves pay 0.1%.

    So, on a net basis, the BOJ is still paying IOR.”

    As Nick Rowe points out, it’s the marginal deposit that is important.

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2016/01/tiered-negative-interest-rates-and-required-reserves.html

  15. Gravatar of John Thacker John Thacker
    29. January 2016 at 09:41

    Futures markets also indicate that traders think this reduces the likelihood of a Fed hike this year or pushes it back.

    Note of course the total lack of “begger thy neighbor” effects here. All worldwide markets love this move.

  16. Gravatar of Brian Donohue Brian Donohue
    29. January 2016 at 09:55

    @John Thacker, but the papers say it’s a CURRENCY WAR!

  17. Gravatar of End. End.
    29. January 2016 at 09:57

    Mainstream macro. models would have predicted this as well, if you account for the fact that interest rates can go slightly below 0. Rognlie’s paper is one example:

    http://economics.mit.edu/files/11174

  18. Gravatar of Bob Murphy Bob Murphy
    29. January 2016 at 10:12

    Scott, I definitely agree that this episode blows up people who thought negative IOR would be contractionary (other things equal), especially if they thought it would destroy base money (!!).

    However, I think you are being too flippant in brushing off people bringing up the long bond yield issue. Yes, you have often said that long-term bond yields could go either way for a given expansionary surprise (e.g. here), but I always thought it was because the liquidity effect worked at cross-purposes to the higher NGDP / inflation effect.

    So, if you’re happy at how “clean” an experiment today’s announcement was, because it isolates negative IOR from bond purchases, then there shouldn’t be a liquidity effect, right? If this is a no-brainer move by the BOJ that makes investors think Japanese real GDP and inflation will be higher in the future, compared to what investors thought yesterday, then why would long-term bond yields fall, if there is nothing (like BOJ purchases of bonds) to offset those forces?

  19. Gravatar of Tom Brown Tom Brown
    29. January 2016 at 10:18

    Scott, though worthless my intuition is that negative rates are expansionary. However, JP Koning (above) states that the BOJ is actually still paying IOR on some reserves.

    But putting aside those details, when can you declare victory? Are you taking a single day’s change as all the evidence you need?

  20. Gravatar of jknarr jknarr
    29. January 2016 at 10:21

    Scott, re:

    Pundits who took a “finance approach” suggested the effects would likely be contractionary, due to their impact on the financial markets. Market monetarists argued that policies that pay less interest on base money are expansionary, because they reduce the demand for base money.

    …aren’t these *both* reasoning from a price change?

  21. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    29. January 2016 at 10:49

    I believe the BOJ suprise move works on the expections more than anything else.

    Also, financial markets work “on the margin”. More base money in the public’s hands, if the banks respond to their incentives, is good (for achieving the goal which is expansionary monetary policy), even though the BoJ still pays positive net interest on reserves. Long and variable leads …

  22. Gravatar of ssumner ssumner
    29. January 2016 at 10:58

    Mikio, Yes, good point.

    O. Nate, Good point.

    Britonomist, I thought I was pretty clear; the test is whether the policy is expansionary or contractionary. Expansionary monetary policies make currencies depreciate, and vice versa.

    JP, Indeed back in 2009 I proposed the same policy, lower rates on the marginal reserves and higher rates on the inframarginal reserves. Now if I could only find that post . . .

    John, Good point.

    End, Yes, Rognlie’s paper is excellent. Back in 2007 most elite Keynesians didn’t believe in liquidity traps. That changed in 2008—hopefully sanity is returning.

    Bob, I don’t follow your argument–why would there be no liquidity effect just because the policy was expansionary? Yes, I cannot explain why the liquidity effect sometimes outweighs the Fisher effect, but I don’t deny that it could occur in a wide variety of cases.

    Tom, Over the past 7 years there’s mountains of evidence in favor of MM, I’ve done 100s of posts pointing this out. This is just one more; final victory is never achieved, as someday and even better model will supersede MM.

    jknarr, No, IOR is not really a price, it’s alike a tax (I’ve done posts on this) Just as you can reason from higher taxes on cigarettes, you can reason from higher IOR.

  23. Gravatar of Tom Brown Tom Brown
    29. January 2016 at 11:24

    Scott I meant (in an ideal world) is one day enough to reasonably expect “those claiming negative IOR would be contractionary” to admit error.

    Two years and two months ago Vincent Cate predicted that Japan would be experiencing low-end “hyperinflation” (2% per month (or 26% a year)) this month and next (at least). I was skeptical, but I figure I’ll wait till March or April before revisiting that with him. (He still has time!).

    I realize “those people” you’re referring to weren’t kind enough to be as specific as Vincent was, but still…

  24. Gravatar of Doug M Doug M
    29. January 2016 at 11:32

    As someone who takes the “finance approach.” Clearly, negative IOR is stimulative.

    If you can make money for taking no risk (i.e. park your money at the Fed and collecting IOR) why would you invest in risky assets. You are lowering the marginal expected return for risk. This is sucking money away from new investment, new projects, and sucking money away from the stock market and credit markets. Negative (or zero) IOR should support the financial markets.

    Maybe we need a definition of the “finance approach.”

  25. Gravatar of Britonomist Britonomist
    29. January 2016 at 11:36

    “Britonomist, I thought I was pretty clear; the test is whether the policy is expansionary or contractionary. Expansionary monetary policies make currencies depreciate, and vice versa.”

    Except you can’t judge the overall how expansionary a policy is by *one day* of data. I highly doubt a currency depreciation would convince Izabella Kaminska that the policy is not more contractionary than otherwise *overall*.

    The point is people will use months or years of data to judge how expansionary/contractionary this policy is overall, and since we have no control or counter-factual, people will always be able to say that an increase or decrease in NGDP was due to other coincident factors.

  26. Gravatar of Robert Simmons Robert Simmons
    29. January 2016 at 11:44

    Is there anybody better than Kaminska at using English without writing in English? Seriously, I’m a professional, and what does “wider credit destruction as banks hand over credit to cover charges” mean? hand over credit? Does that mean make loans???

  27. Gravatar of TallDave TallDave
    29. January 2016 at 12:04

    Brit — “Except you can’t judge the overall how expansionary a policy is by *one day* of data.” No, but you can judge how markets expect the policy to work. Expectations can change a lot over a day.

    Thanks for sharing Scott, this is good news for the Japanese, and the world.

  28. Gravatar of ssumner ssumner
    29. January 2016 at 13:07

    Tom, 5 minutes should be enough, as markets move immediately on new information.

    Doug, How about Financial Times approach, or those in the FT claiming to take a finance approach.

    Britonomist, Markets respond immediately to new information. Nothing we learn later will have any bearing at all on this question. Otherwise what’s the point of event studies? Read one of my “there is no wait and see” posts.

    Robert, Nick Rowe and I also find her hard to follow. But lots of smart people like her stuff, like Tyler Cowen.

  29. Gravatar of Randomize Randomize
    29. January 2016 at 13:12

    Doug M. is spot on. I would use a similar explanation based in MPT whereby the central bank sets the risk-free rate. If stock and bond returns are set by Return = Risk-Free Rate + Risk Premium, it should be common sense to believe that a cut in the risk-free rate would reduce yields of both stocks and bonds and thus, drive up the prices of these assets and stimulate borrowing.

    For those who insist on reasoning from a price change, did the market react in the way I described? Emphatically yes.

  30. Gravatar of Tom Brown Tom Brown
    29. January 2016 at 15:12

    “5 minutes should be enough”

    No doubt the Japanese noticed then. So do you think we can expect they’ll be regularly hitting all the targets they’d like to be hitting a year from now then?

  31. Gravatar of ssumner ssumner
    29. January 2016 at 17:08

    Tom, You asked:

    “So do you think we can expect they’ll be regularly hitting all the targets they’d like to be hitting a year from now then?”

    No, nor do the markets.

  32. Gravatar of Benjamin Cole Benjamin Cole
    29. January 2016 at 17:19

    Scott: 5 minutes? Well maybe one hour.

    What actually happened on the Japanese Nikkei 225 is that it rose after the BOJ announcement, but then plunged to losses when traders realized the negative rates were limited in scope, and thought the BOJ action was too small. The final afternoon rise came when the yen weakened.

    Evidently the Nikkei 225 reacted to a weakened yen, which is regarded as a positive an export-oriented Japan. This is happened many times in the last couple years, that a weaker yen promotes a stronger Nikkei 225.

    Side note: the BOJ took this action despite Japan having the tightest labor market it has had in 24 years. Also note the Reserve Bank of India has been lambasting commercial banks there for not passing through rate cuts, this under the governor Raghuram Rajan from the University of Chicago.

    Compare these central bank actions to the feeble Fed, where every other word is “inflation.”

  33. Gravatar of Britonomist Britonomist
    29. January 2016 at 17:40

    “Britonomist, Markets respond immediately to new information.”

    And what if the information regarding how stimulative negative rates really are is not well understood, or only understood by a few experts, or disputed among experts (which it is) – then the immediate response of stocks/fx markets only tells us what the average immediate knee-jerk response of financial market participants is on average. I don’t accept a hardcore EMH view when there is *uncertainty* and information still to come (and yes there is information still to come, crucially how this policy will actually affect bank behaviour in the coming few months – that’s a more relevant test), when this new information comes out market sentiment could change fast.

  34. Gravatar of John Thacker John Thacker
    29. January 2016 at 17:43

    Benjamin Cole: So you are suggesting that all the other stock markets in the world also love a weaker Japanese yen? Seems like a pretty unlikely explanation for world market moves.

  35. Gravatar of Ray Lopez Ray Lopez
    29. January 2016 at 18:41

    Readers: note how dishonest Sumners is, as Bob Murphy points out, Sumners ignores JP bond yields and declares victory for NGDPLT-type MM when a single variable, the JP/USD exchange rate, changes. But it’s far simpler to see that the rate changed simply because the interest rate differentials changed, nothing more. If the BOJ interest rate dropped from 5% to 3%, you’d have the same ‘jump’ in the JP/USD exchange rate. Proves nothing. Jury is still out on whether this negative IOR will work. Based on Europe’s example, it won’t. Money is neutral.

  36. Gravatar of Major.Freedom Major.Freedom
    29. January 2016 at 19:24

    “Market monetarists argued that policies that pay less interest on base money are expansionary, because they reduce the demand for base money.”

    What exactly does “reduced demand” here mean? Does it mean banks exchange base money for some other assets? Well, who accepts the base money from the banks? And wouldn’t their demand for base money have increased, thus offsetting the fall in demand by the banks? How is this “expansionary”?

    It is, within anti-market monetarist doctrine, wrong to interpret a fall in the JPY/USD exchange rate, or any other exchange rate, as “expansionary”. Only if NGDP has increased beyond what it otherwise would have increased by, can any action be considered “expansionary.” And even here there is no concrete way to isolate the counterfactual from which to compare the negative IOR.

    Sumner is contradicting himself yet again. The fact that more Yen are needed to buy a USD says NOTHING about whether or not there are more Yen circulating in Japan’s borders. There may be more, but we cannot conclude there is more based solely on the JPY/USD exchange rate.

  37. Gravatar of SD000 SD000
    29. January 2016 at 21:11

    This all makes sense to me, except the long-term bond yields falling precipitously. It seems as if that’s being handwaved as irrelevant to fit into the overarching theory.

  38. Gravatar of Johnny P Johnny P
    29. January 2016 at 21:28

    This article’s conclusion is such complete BS, one wonders if it was deliberately meant as TROLLBAIT.

    There’s no way to conclude yet if neg rates are expansionary or contraction are until a suitable amount of time has passed.

    Totally IDIOTIC to claim that exchange rate movement=expansionary.

    Of course yen will weaken on lowering interest rate, duh. Havent you heard of covered interest rate parity?

    Read your own Kaminska quote carefully: “the move would ULTIMATELY be contractionary rather than expansionary”

    I’m pretty sure what she meant was that over the long term, the base money shrinkage engendered by neg rates would have a contractionary effect.

  39. Gravatar of dtoh dtoh
    29. January 2016 at 23:03

    Scott, not to point the obvious but negative rates on IOR are not necessarily either contractionary or expansionary. -0.1% might well be contractionary if the previous rate was -0.2%.

  40. Gravatar of Benjamin Cole Benjamin Cole
    30. January 2016 at 01:45

    John Thacker: good question. I am just reporting what happened on the Nikkei 225 after the BOJ announcement. First up, then into negative territory, then up on yen. Of course, the yen is signalling the BOJ action is meaningful.

    BTW inbound tourism to Japan grew by 49% in 2015 YOY. Chinese tourists. The yen has gone from about 80 to 120 to dollar.

    Despite hostilities we may see a Sino-Nippon world evolving…with US as sideshow thanks to the monetary noose of the Fed…think how Japan disappeared during tight money….

  41. Gravatar of ssumner ssumner
    30. January 2016 at 07:20

    Ben, Good point.

    Britonomist, If this was the first time I might agree with you. But we’ve seen this repeatedly in Europe. The forex reaction is not really in doubt.

    John, You said:

    “So you are suggesting that all the other stock markets in the world also love a weaker Japanese yen? Seems like a pretty unlikely explanation for world market moves.”

    They like the income effect of an easier money policy in Japan, and the resulting yen depreciation. They don’t like the substitution effect. But the income effect is generally more powerful. Again, we’ve seem that repeatedly. US stocks rally on easier money at the ECB as well.

    Ray, You are in way over your head.

    Johnny, Take a sedative and than take a course in macro. Preferably with coverage of event studies.

    dtoh, Not to point to the obvious? I agree, don’t. :)

  42. Gravatar of Johnny P Johnny P
    31. January 2016 at 00:37

    Reasoning such as yours (assuming we could properly call something so flimsy and cavalier as ‘reasoning’) is why economics is very properly considered the dismal science.

    Even assuming that JPY depreciation was NOT due to covered interest rate parity, but rather due to the market “thinking” that negative interest rates were expansionary, IT DOESN’T MEAN THE MARKET IS RIGHT.

    The ONLY way to know for certain is to wait and see if the economy actually contracts or expands going forward.

  43. Gravatar of TallDave TallDave
    31. January 2016 at 00:59

    Britonomist: “what the average immediate knee-jerk response of financial market participants is on average” is not infallible, but is highly correlated to outcomes.

    So the market will soon have more information about the result of the policy, and the next response will be a bit more empirical. If at some point the policy is extended or rolled back, we’ll see how the market reacts to that delta.

  44. Gravatar of Dan W. Dan W.
    31. January 2016 at 06:05

    TallDave,

    We have 3 decades of data to make an empirical observation: Markets respond favorably when the central bank lowers its target interest rate or otherwise indicates a preference for doing so.

    It is also observed that since 1994 every period of increased interest rates has been followed by market declines and poor economic performance. And since 2011, it is observed that absent monetary stimulus, such as QE, the market and economy decline, even with interest rates held steady.

    Hypothesis: The global economy is dependent on ongoing monetary stimulus to maintain asset prices and current levels of economic output. Without such stimulus deflationary forces gain the upper hand.

    Opinion: It appears that government and the central bankers abhor deflation and will do anything to prevent it. Yet deflation is a natural economic outcome. So it seems the central bankers are in a futile battle against economic nature. They will eventually lose this battle but at what cost? What will be the collateral damage? Will they and the monetarist allies ever accept responsibility for the financial and economic calamity they caused?

  45. Gravatar of Major.Freedom Major.Freedom
    31. January 2016 at 06:53

    Dan W:

    “We have 3 decades of data to make an empirical observation: Markets respond favorably when the central bank lowers its target interest rate or otherwise indicates a preference for doing so.”

    “It is also observed that since 1994 every period of increased interest rates has been followed by market declines and poor economic performance.”

    Once again, the true believers in money printing purposefully ignore the other, more discomforting correlation that those periods of increased interest rates and market declines were all PRECEDED by the Fed lowering rates below market rates and causing a boom (unsustainable in reality, sustainable in the minds of the true believers).

    Just because the periods of lowered interest rates and credit expansion did not “have the outcome” of higher than 5% NGDP growth, it doesn’t mean those actions by the Fed were not cause of serious distortions in the economy. Distortions are not caused by too much or too little NGDP. That is merely one aspect of already distorted activity.

  46. Gravatar of TallDave TallDave
    1. February 2016 at 06:23

    Dan W — We have a lot of data for monetary loosening, but not much for negative IOR.

  47. Gravatar of ssumner ssumner
    1. February 2016 at 14:13

    Johnny, You still don’t get it. Currency depreciation caused by monetary shocks is definitely expansionary, even if the forex market is totally stupid about macro and there is no justification for the currency to fall. Exchange rates are macro variables.

    And an expansionary monetary policy will cause currency depreciation regardless of whether it causes bond yields to rise or fall—check out my new Econlog post.

    Dan, You do know that interest rates are procyclical, don’t you? I guess not.

  48. Gravatar of o. nate o. nate
    3. February 2016 at 06:24

    Perhaps we declared victory too soon over the “finance” view. Japan bank stocks have tanked, and the Nikkei and yen have retraced a lot of their post-announcement moves:

    http://ftalphaville.ft.com/2016/02/03/2152108/japanese-banks-dont-like-something/

  49. Gravatar of Giles Giles
    3. February 2016 at 08:04

    To be fair to Iza, she did say this

    So in short, excess reserves do not mean banks are not lending, and enforcing negative rates may do more harm than good because it is ultimately contractionary rather than expansionary, unless accompanied by ongoing asset purchases by the central bank.

    Note the caveat

  50. Gravatar of ssumner ssumner
    3. February 2016 at 12:14

    o. nate. EMH, EMH, EMH, EMH.

    Only the initial reaction counts. Stocks have been falling all over the world.

    Giles. That caveat (which I saw) doesn’t help, as the announcement included no change in the QE program, so the market was simply responding to the negative IOR.

  51. Gravatar of Johnny p Johnny p
    11. February 2016 at 19:52

    I always thought this blog post was kooky bunk. Not because the thesis that neg rates are expansionary is necessarily incorrect, but more the fact that a not-that-big yen move was taken as proof to the contrary (plus the vainglorious title of the post)

    SSumner, please entertain us with your next attempt at rebuttal wrt the news below.

    “Asia’s Rich Advised to Buy Yen as BOJ’s Negative Rates Backfire”

    http://www.bloomberg.com/news/articles/2016-02-12/asia-s-rich-advised-to-buy-yen-as-boj-s-negative-rates-backfire

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