Keynesians often regard monetarism as a relic of the 1970s, with no real presence in the modern world. In one sense that is true. But in another sense it could not be more wrong. Commenter H Wasshoi sent me the minutes of the BOJ’s April meeting:
A. Vote on the Guideline for Money Market Operations
Based on the above discussions, members agreed that it was appropriate to (1) change the main operating target for money market operations from the uncollateralized overnight call rate to the monetary base and (2) conduct money market operations so that the monetary base would increase at an annual pace of about 60-70 trillion yen.
To reflect this view, the chairman formulated the following proposal and put it to a vote.
The Chairman’s Policy Proposal on the Guideline for Money Market Operations:
1. The main operating target for money market operations will be changed from the uncollateralized overnight call rate to the monetary base.
2. The guideline for money market operations will be as follows.
The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen.
3. A public statement will be decided separately.
Votes for the proposal: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. R. Miyao,
Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, Mr. T. Sato, and Mr. T. Kiuchi.
Votes against the proposal: None.
That’s roughly $600 to $700 billion per year in an economy 1/3 the size of the US.
So they are switching from interest rate instrument to a monetary base instrument. And where did the inspiration for this idea come from? Perhaps many places, but one person in particular is mentioned in the minutes (p. 17):
One member expressed an opinion on the medium- to long-term relationship between the monetary base and the expected inflation rate, as well as on the pace of increase in the monetary base from the viewpoint of the McCallum rule. Members then concurred — while recognizing the necessity of considering the feasibility in terms of the Bank’s market operations — that the Bank could purchase about 7 trillion yen of JGBs on a monthly basis on the premise that all maturities of JGBs were eligible for purchases.
Bennett McCallum is a long time proponent of a policy rule that would adjust the monetary base in such a way as to stabilize NGDP growth. Ideas have consequences. I recall he published his proposal way back in 1980. He’s now fairly old. Don’t let anyone tell you your plan is “politically unrealistic.” If it’s the right thing to do keep fighting for it relentlessly. When I’m on my deathbed the last words I mumble will not be “Rosebud,” they will be “NGDP futures targeting.”
BTW, Japan is the only developed country (I think) where NGDP growth in 2013 has recently been well above the 20 year trend. (Of course when the trend is negative that’s a low bar!)
Speaking of Japan, perhaps these pictures can help inspire the BOJ governors to inflate the economy. I’m told she would take as many as two hundred shots each time, just to get it right. And there are hundreds of pictures. The Japanese culture emphasizes perfectionism. Let’s hope that applies to monetary policy.