2023-10-03 01:30:23
If the same rules that Bank of Japan Governor Kazuo Ueda cited when he voted once morest lifting zero interest rates more than 20 years ago are applied, the world’s last negative interest rate policy will likely be lifted sooner rather than later.
Mr. Ueda used the Taylor Rule to explain why he did not support lifting the zero interest rate at the August 2000 Monetary Policy Meeting, when he was a member of the Bank of Japan’s deliberative committee. Six months later, when the Bank of Japan was forced to return to negative interest rates once more, Mr. Ueda’s insight in voting once morest the bill was highly praised.
Mr. Ueda in September 2001Lecture“At that time, I myself tried to calculate the specific level of the appropriate interest rate using the so-called Taylor rule, and the result was that although the appropriate interest rate was rising, the level was still negative.” explained. “Simply put, this recognition is the reason why I opposed the lifting of zero interest rates in August 2000,” he said.
Professor John Taylor
Photographer: SeongJoon Cho/Bloomberg
While Mr. Ueda made it clear that the Bank of Japan does not use the Taylor Rule as a benchmark for policy-making, referring to it as merely a means to explain Mr. Ueda’s analytical approach at the time, in 2014 to Nihon Keizai ShimbunContributionthe Taylor Rule was used to discuss the appropriate level of interest rates in Japan and the United States.
Kentaro Koyama, chief economist at Deutsche Securities, who previously worked at the Bank of Japan, points out that the current situation is very different from 2000. The Bank of Japan is expected to lift negative interest rates in January next year. According to his estimates, the current policy rate level implied by the Taylor rule is 7%.
“Although the policy interest rate suggested by these policy rules needs to be viewed with a considerable range, if it clearly turns positive this much, it will be possible to maintain an accommodative monetary policy even if the negative interest rate policy is lifted. It’s possible,” he analyzed. “The current policy error is rather the delay in lifting negative interest rates, the resulting depreciation of the yen, and the continued high inflation.”
Since it was devised by Professor John Taylor of Stanford University in 1993, the effectiveness of the Taylor Rule and its revised version has been actively debated.
Former St. Louis Fed President James Bullard posted an update on his Taylor Rule framework in June, saying the policy at the time was “sufficiently counter-cyclical,” even though inflation remains too high. ‘ suggested that it was at the lower end of the range.
Former Federal Reserve Chairman Ben Bernanke wrote in 2015 that “monetary policy should be systematic, not automatic.” “The simplicity of the Taylor Rule masks the underlying complexity of the judgments that FOMC members must constantly make to make good policy decisions,” he said.
Tetsuya Inoue, a senior researcher at the Nomura Research Institute who served as Governor Ueda’s secretary when he was a member of the Bank of Japan’s deliberative committee, points out, “Perhaps the Taylor rule was used because it was easy to understand.” He said, “Of course we are looking at this within the Bank of Japan, but this is not the only thing we are looking at.The economy has changed due to things like the coronavirus, and I think it is especially difficult to use the Taylor rule now.” He showed his perspective.
Toshitaka Sekine, former head of the Bank of Japan’s Research and Statistics Department, expressed a similar view, saying that while the Taylor Rule may cause monetary policy makers to worry, the central bank does not rely solely on that indicator. Ta.
According to Mr. Sekine, the Taylor Rule “doesn’t have to be mechanically followed, but it’s something you can use to ask yourself questions.” “If this diverges from reality for a much longer period of time, and if you feel somehow uncomfortable when you put your hands on your chest, I think that’s a sign that we need to change our policies.” he said.
Original title:BOJ’s Ueda Would Need to Hike Rates If He Used Taylor Rule Again(excerpt)
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