John Taylor: Two takes

Back in 2006 at a Bank of Japan Conference:

In the last three years, the Japanese economy has improved greatly compared to the decade-long period of near zero economic growth and deflation that began in the early 1990s. Once again Japanese economic growth is contributing to world economic growth as the expansion in Japan begins to set records for its durability.

What has been responsible for this recovery?  The banking and other economic reforms of the Koizumi administration have been very important, and such reforms will need to be continued to sustain strong economic growth in the future. However, the key to the recovery, in my view, has been the quantitative easing of monetary policy that began in March 2001, but which really took off in 2003 and 2004 with substantial increases in the rate of growth of the monetary base.

It was also during the 2003-2004 period that the Bank of Japan purchased large amounts of foreign exchange as it intervened in the exchange markets. An important question with lessons learned for the future is whether and how this “great intervention” was connected to the quantitative easing, the increase in the monetary base, and thereby to the ultimate recovery in Japan.

On October 6 2011: The Dangers of Misrepresenting Past Economic Debates

“What’s past is prologue,” says Future, the statue at the National Archives. But in macroeconomic policy—monetary and fiscal—the past is often misrepresented, and that unfortunately leads Future astray.  A common misrepresention these days pertains to past views of economists about monetary and fiscal policy. Consider David Frum’s recent opinion piece for NPR’s Marketplace Radio claiming that “The Great Recession has changed the way many conservatives talk about economic policy.” I don’t see the kind of change Frum and others claim has taken place.

And this is exactly what conservative are saying now. Stop all the interventions—the short-term discretionary fiscal stimulus packages and the massive quantitative easings and the operation twists of monetary policy. The unpredictability caused by these policies is causing uncertainty and holding the recovery back. Instead put in place more permanent reforms which will create economic recovery and return the economy to the kind of performance we saw in the 1980s and 1990s.

HT Benjamin Cole

Note: The 2006 comment can be read by clicking on the pdf below:

“Lessons from the Recovery from the ‘Lost Decade’ in Japan: The Case of the Great Intervention and Money Injection,” Background paper for the International Conference of the Economic and Social Research Institute Cabinet Office, Government of Japan, September 2006 pdf