The former Governor of the Bank of Japan (BoJ), Masaaki Shirakawa, has called on policymakers to reconsider the current monetary framework based on inflation targets, in a column published by the International Monetary Fund (IMF) on Wednesday.
Inflation targeting has been the basis of monetary policy for the past 30 years, and was a response to the severe stagflation of the 1970s and early 1980s. However, Shirakawa believes that the time is right to reconsider this framework and come up with a new one.
Shirakawa discussed the issue of low inflation, which was of great concern to many central banks in advanced economies before the recent spike in inflation. He argued that these central banks have failed to restrain rapid price gains by judging them as transitory. He believes that by allowing inflation to overshoot their targets, central banks have not tightened policy soon enough and have thus forgotten the difficulty of taking away the monetary punch bowl.
The former Governor of the BoJ has proposed that the current inflation targeting framework needs to be changed in order to address the issues of low inflation and rapid price gains. He believes that the framework should be reconsidered in light of the limitations of the current framework, and that a new one should be developed.
Shirakawa has suggested that central banks should focus more on the financial stability of the economy and less on inflation. He believes that central banks should focus on the stability of the financial system, and that this should be the main goal of monetary policy.
He also believes that central banks should take into account the impact of their policies on the real economy, and not just focus on the inflation rate. He suggests that central banks should pay more attention to the real economy and the effects of their policies on employment, wages, and economic growth.
Finally, Shirakawa believes that central banks should use a variety of tools to achieve their goals. He suggests that central banks should use a combination of conventional and unconventional tools to achieve their objectives.
In conclusion, Shirakawa believes that the current monetary framework based on inflation targets has failed to address the issues of low inflation and rapid price gains. He has proposed that the current framework should be reconsidered and a new one should be developed. He believes that central banks should focus more on financial stability, the real economy, and use a variety of tools to achieve their goals.