The Japanease miracle

koichi hamada 1The central banks play a more important role than central banks leader say. Therefore, it is crucial what a central bank leader does – according to Koichi Hamada, professor emeritus of economics at Yale University.

Central Banks have a very important role in stimulating the economy.

Peter Zentai: In Europe we have a similar problem. Do you think governments should intervene in central banks?
Koichi Hamada: Well, I think it depends. The wisdom of independence of a central bank has some wrong history. To fight the tendency of the government to inflate, to spend more by printing money and Europe experienced Germany particularly severe inflation. The Bank of Japan divide on its independence and conducted a very conservative monetary policy for fifteen years that led Japan into loan stagnation.

Is it proven?
Well, yes. You go back to Krugman or Mankiw who suggest deflation is only symptom. In case of Japan it was caused by the neglect of monetary policy.

Do economists in general feel the Bank of Japan should implement an inflationary policy?
They need to stop the deflation. Japan never really experienced huge inflation with the exception of the first oil crisis. In 1972 Japan contained inflation below 5%. There is no worry about hyperinflation.

Why do you think 2% is the right target?
The US also has a 2% target. If we set the inflation target below that that suggests the yen should appreciate every year by 1 or 2% forever. So I think 2% is very reasonable. After these 15 years of d deflation I was going to suggest 3% or something like that. The IMF chief economist suggests 4%. Krugman says 4%.

What took place in Japan is called stagnation. Do you think the Bank of Japan contributed to this stagnation?
Well, the 80% of it is BOJ’s fault, not a 100%.

What is the other 20%?
Oil price, etc, there are many factors. The monetary policy is distinctly conservative in Japan compared to other countries.

Do you think if Japan gave up on its monetary policy it would get into a fiscal bink?
It is a matter of fiscal authority. The Bank of Japan is responsibly for its own duty which is to create sufficient liquidity and stop the inflation. The bank of Japan is like a stomach doctor which declines to give enough stomach medication to the patient. So the bank of Japan is neglecting.

As I understand you give advice to the president?
I cannot take a full time job because of my physical conditions. The prime minister listens to other people, it is not an easy job.