Friday, September 28, 2012

The real lesson from Japan's lost decades

An interesting thesis: instead of Central Banks setting inflation targets, they should  set nominal GDP targets.

In current conditions, it makes sense.  It stops the debt to GDP ratio spiralling out of control.  It means that if inflation accelerates, policy would automatically tighten unless growth were also falling.  And it means inflation short term will rise moderately.  A good thing when debt to GDP ratios are so high.

Just for the record, here's Japan's lost decade, using industrial production (IP) as the indicator.  I could use GDP, which has a modest upslope.  But I don't have up to date data, and I'm busy as, so meh.


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