In his blog, John Cochrane critically reviews arguments in favor of higher inflation in Japan.
He approves of the view that a conventional stimulus argument does not make much sense—given that Japanese growth is around potential and unemployment is low.
He does not approve of the view that inflation would be helpful by lowering (public and private) debt burdens. He doubts that an inflation induced default on outstanding debt would significantly lower taxes (rather than lead to more government spending) and that even if it did, such a default would increase the optimism of young households.
He also questions whether inflation could significantly reduce the real value of Japanese public debt (because debt maturity is short) and whether the debt burden is actually large (given near zero interest rates).
The Economist argues that negative interest rates appear not to spur inflation or growth but to weaken exchange rates. And they put pressure on banks.
Robin Harding reports in the Financial Times about the IMF’s critical review of its own policy recommendations in 2010. The IMF’s independent evaluation office commends the fund’s lending at the time but criticises the advice to cut budget deficits. However, important IMF officials dissent. According to the FT, (current, but not then) managing director Christine Lagarde notes that “[a]s the report acknowledges, this assessment is benefiting from hindsight.” And: “Considering the information and growth forecasts available in 2010, I strongly believe that advising economies with rapidly rising debt burdens to move toward measured consolidation was the right call to make.”