Masazumi Wakatabe: The future of monetary policy - lessons from the history of monetary economics

Keynote speech by Mr Masazumi Wakatabe, Deputy Governor of the Bank of Japan, at the 38th Annual Meeting of the Japan Association of Business Cycle Studies, Tokyo, 3 December 2022. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

Economies around the world have been facing elevated inflation, and attention has been drawn to the responses made by governments and central banks (Chart 1). It is difficult to predict how long the current inflation will last in the medium to long run. One recent narrative regarding inflation is that, since the mild-inflation regime accompanied by anxiety over deflation has ended, we are about to enter a regime of high inflation. There are others, however, who are skeptical whether inflation will take hold (Wolf 2022a; Krugman 2022a, 2022b).

Since the 2000s, the global economy has been concerned about secular stagnation or "Japanification" - the combination of low inflation (or deflation), low growth, and low interest rates. But will this era of Japanification be finally over as the narrative insists? In addition, as inflation has started to be observed worldwide, the efficacy or validity of the idea of a high-pressure economy has become a controversial topic. On the question of how long the current inflation will last, I would like to discuss future monetary policy and the highpressure economy from a medium- to long-term perspective, rather than examining the current inflation.