Central Banks Can Increase Inflation

Moneybox
A blog about business and economics.
March 6 2013 2:57 PM

Yes, Central Banks Can Increase Inflation

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One of the weirder myths of our time, originating in Japan before migrating over to the United States, is the idea that a central bank might try to fail, to generate a modest increase in inflation expectations.

Scott Sumner offers the above chart, which shows it's relatively easy in the real world. As the Bank of Japan has been persuaded to change its stated targets, inflation expectations have moved. People do appear to expect the BOJ to slightly undershoot its targets. But when the BOJ targets move, so do inflation expectations. And as inflation expectations rise, people should become less eager to hold low-yield financial assets and more eager to hold durable goods while firms become less eager to hold low-yield financial assets and more eager to hold capital goods.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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