Paul Krugman looks back on the past twenty years of macroeconomic policy and finds that his 1998 paper was more prescient than he or anyone could have imagined. Back then many observers assumed that central bankers–particularly those at the Bank of Japan–need only increase the monetary base to increase the price level. It was that simple.
Ken Rogoff, for example, said the following in commenting on Krugman’s 1998 article:
No one should seriously believe that the BOJ would face any significant technical problems in inflating if it puts it mind to the matter, liquidity trap or no. For example, one can feel quite confident that if the BOJ were to issue a 25 percent increase in the current supply and use it to buy back 4 percent of government nominal debt, inflationary expectationsRead More »