Scott Sumner  

Peter Pan in Japan

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Ever since 2009, I've been using the Peter Pan analogy for the expectations channel of monetary stimulus: If I think I can fly, then I can fly. Now the Japanese are adopting this approach:

Though lower oil prices have stalled progress toward an official 2 percent inflation target, Bank of Japan Gov. Haruhiko Kuroda, insists that a revival of confidence is inevitable.

"Yes, what we need is a positive attitude and conviction," Kuroda said in a speech to a conference last week.

He referred to a line in the children's tale of "Peter Pan" that says "the moment you doubt whether you can fly, you cease forever to be able to do it."


Personally, I prefer Yoda's version:

Do or do not, there is no try.
Lars Christensen started it, and David Beckworth and Nick Rowe also like to refer to the "Chuck Norris effect", although the Japanese might want to substitute the much more formidable Toshiro Mifune. The basic idea is that you do whatever it takes to convince the public that NGDP will grow at the target rate, and then people will no longer want to hoard cash. As they spend their excess cash balances, NGDP will grow.

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COMMENTS (8 to date)
ThomasH writes:

But that implies that the monetary authority might actually have to DO something that is deeply unpopular with the VSP. Surely that explains the limited amount and duration of the Fed's QE.

CMA writes:

"The basic idea is that you do whatever it takes to convince the public that NGDP will grow at the target rate"

In other words purchase assets, stimulate portfolio flows, credit and grow the financial sector at the expense of everything else. Isnt this just undermining real gdp and stimulating "monetary shocks"?

One of these days all that deficit spending and ZIRP in Japan is going to kick in. It's only been about 20 years. Give it time. ;-)

Roger Sweeny writes:

The Hitchhiker's Guide to the Galaxy nailed it: flying is easy; just fall and miss the ground.

Scott Sumner writes:

Thomas, In the US the main problem was that the Fed had the wrong target. They seem ready to raise rates later this year despite NGDP being far below trend. There's not much you can do if the Fed has the wrong target.

CMA, You said:

"In other words purchase assets, stimulate portfolio flows, credit and grow the financial sector at the expense of everything else."

Someone who comments as frequently as you do must surely know that those are not my views. I favor NGDPLT.

CMA writes:

I was referring to the tools employed to achieve ngdplt, not the target.

CMA writes:

I was referring to the tools employed to achieve ngdplt, not the target.

Don Geddis writes:

@CMA: No, you didn't understand the post at all. The "tools" to achieve NGDPLT are: (1) communicate proper target, and (2) credibly threaten. The list you gave includes (some of) what is threatened, but are not the actual tools used to achieve NGDPLT.

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