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IMES Newsletter
June 2019
The Institute for MonetaryandEconomicStudies

2019 BOJ-IMES Conference(IMES) was founded in 1982
as an internal organ of theBankofJapan,inofthecentennial.

Thecommemoration
Bank’s

IMES conducts a wide rangeof studies on the theoretical,institutional, and historicalaspects of monetary andeconomic issues. The IMES
also collects, conserves, andexhibits historical materials
related to monetary andeconomic issues.

Highlight of This Issue
2019 BOJ-IMES Conference Opening remarks
 Mayekawa Lecture Keynote speech Policy panel discussion
The IMES Newsletter aims
to provide information about
the IMES’ activities andmajor events held by theIMES on a timely basis.

The Institute for Monetary and Economic Studies (IMES) of the Bankof Japan (BOJ) held the 2019 BOJ-IMES Conference, titled “CentralBank Design under a Continued Low Inflation and Interest Rate
Environment,” on May 29–30, 2019 at the BOJ Head Office inTokyo.
The conference attracted about one hundred participants fromacademia, central banks, and international organizations. It covered awide range of issues regarding the implementation and effects ofcentral bank policies under a continued low inflation and interest rateenvironment.
The conference began withopeningremarks
byBOJ
Governor Haruhiko Kuroda. He
pointed out that both inflation andnominal interest rates had been
low and had not returned to levels
prior to the Global Financial
Crisisinmostadvancedeconomies. He then reviewed thefour policy agenda related to this
BOJ Governor Haruhiko Kuroda
delivers his opening remarks
environment: (i) monetary policy(Photo: Shoichi Nose).
framework; (ii) monetary policy
instruments; (iii) the relationship between price stability andfinancial stability; and (iv) spillovers to emerging and developing
economies. He concluded his speech by expressing his hope that theIMES Newsletter June 20192

conference
wouldcontribute to a deeper
understanding of central
bank design under acontinued low inflation
andinterest
rateenvironment.
Conference participants (Photo: Shoichi Nose)In the Mayekawa Lecture, Mr. Jean-Claude Trichet, former
President of the European Central Bank, reviewed theperformance of the euro area economy since the introductionof the euro and discussed future policy issues. He first statedthat the euro had been successful in terms of international
credibility, domestic price stability, and resilience against
turbulent times, and pointed out that the real growth per
capita in the euro area was comparable to that in the U.S. He
then argued that stronger economic, fiscal and financial
governance was essential to achieve macroeconomic
convergence among member countries. Regarding monetary
policy-making, he pointed out that central banks in theadvanced economies, including the European Central Bank,
had become closer to each other.

Professor Carl E. Walsh (Universityof California, Santa Cruz, Honorary
Adviser to the IMES) delivers thekeynote speech.

Mr. Jean-Claude Trichet, former
President of the European Central
Bank, delivers the Mayekawa
Lecture (Photo: Shoichi Nose).

In the keynote speech, Professor Carl E. Walsh (Universityof California, Santa Cruz, Honorary Adviser to the IMES)
discussed whether the widespread framework of inflation
targeting (IT) should be replaced with alternatives such as
price-level targeting (PLT) and average inflation targeting(AIT). He showed simulation results below: (i) the social
loss under PLT was the smallest in basic New Keynesianmodels, but (ii) in the presence of both wage stickiness andproductivity shocks, PLT performed worse than IT and AIT,and (iii) when inflation expectations were well anchored, theadvantage of PLT disappeared.

IMES Newsletter June 2019

3Panelists and a moderator (from left): Assistant Governor Christian Hawkesby (Reserve Bank of New
Zealand, panelist), Principal Adviser to the Director General Economics Klaus Masuch (European CentralBank, panelist), Deputy Governor Masazumi Wakatabe (BOJ, panelist), and Professor Athanasios
Orphanides (Massachusetts Institute of Technology, Honorary Adviser to the IMES, moderator)

The policy panel discussion, moderated byProfessor
Athanasios
Orphanides(Massachusetts Institute of Technology,
Honorary Adviser to the IMES), had threepanelists from central banks: Assistant
Governor Christian Hawkesby (Reserve Bankof New Zealand: RBNZ), Principal Adviser tothe Director General Economics Klaus
Masuch (European Central Bank), and
Deputy Governor Masazumi Wakatabe(BOJ). They discussed the credibility ofcentral banks under a low interest rateenvironment.
Mr. Hawkesby explained recent revisionsof the monetary policy framework at RBNZ
to maintain its credibility. First, he stated that
RBNZ had moved from the single objectiveof price stability to a dual mandate where
both the target inflation rate and themaximum sustainable employment werepursued, considering that employment wasclosely related to the wellbeing of the people.
Second, he pointed out that the introductionof Monetary Policy Committee was intended toenhance diversity and transparency in themonetary policy decision-making process.
Mr. Masuch focused on the interaction
between monetary policy and other policies,
based on the experience in the euro area
economy. He emphasized the importance ofusing appropriate fiscal and financial policies
in coordination with monetary policy to support
the resilience of the economy in times of crisis
when the policy rate was close to the effective
lower bound. He also argued that, in addition to
the fiscal and financial policies conducted byeach member country, institutional frameworkfor promoting policy coordination in the euroarea as a whole was also needed.
Mr. Wakatabe presented the lessons forcentral bank credibility from the Japaneseexperience, which include: (i) a low natural rateof interest, (ii) difficulty in re-anchoring
inflation expectations, (iii) interplay between
financial stability and monetary policy, and (iv)
revision of the institutional framework.
IMES Newsletter June 2019

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Reviewing the BOJ’s words and deeds, heemphasized that the introduction of pricestability target in January 2013 andQuantitative and Qualitative Easing had
contributed to improving inflation and growth
performance. He closed his remarks byconcluding that both words and deeds were

important for maintaining credibility.
In the paper presentation sessions, fourpapers, related to the topics raised in Governor
Kuroda’s opening remarks, were presented anddiscussed by conference participants.

Professor Giancarlo Corsetti (University ofCambridge, left) presents his paper, “Exchange
Rate Misalignment, Capital Flows and Optimal
Monetary Policy Trade-offs.” Mr. Paolo Pesenti(Federal Reserve Bank of New York, right)
discusses the paper.

Professor Enrique G. Mendoza (University ofPennsylvania, left) presents his paper, “Tight
Money-Tight Credit: Coordination Failure in theConduct of Monetary and Financial Policies.”
Professor Kosuke Aoki (University of Tokyo,right) discusses the paper.

Professor Markus K. Brunnermeier (PrincetonUniversity, left) presents his paper, “The Reversal
Interest Rate.” Ms. Meredith Beechey (SverigesRiksbank, right) discusses the paper.

Mr. Nao Sudo (Bank of Japan, left) presents hispaper, “Prolonged Low Interest Rates andBanking Stability.” Mr. Carlos Thomas (Banco deEspaña, right) discusses the paper.

IMES Newsletter June 2019

5Recent Publications from the IMES

IMES Discussion Paper SeriesNo. 2019-E-6“The Reversal Interest Rate” by Markus K. Brunnermeier, Yann Koby, June 2019No. 2019-E-5“Security Analysis of Machine Learning Systems for the Financial Sector” by Shiori
Inoue, Masashi Une, May 2019No. 2019-E-4“Foreign Reserve Accumulation, Foreign Direct Investment, and Economic Growth” byHidehiko Matsumoto, March 2019No. 2019-E-3“State Dependence in Labor Market Fluctuations: Evidence, Theory, and Policy
Implications” by Carlo Pizzinelli, Konstantinos Theodoridis, and Francesco Zanetti,February 2019No. 2019-E-2“Negative Interest Rate Policy and the Influence of Macroeconomic News on Yields” byRasmus Fatum, Naoko Hara, and Yohei Yamamoto, February 2019

Monetary and Economic Studies Vol.36 / November 2018
“Central Banking in a Changing WorldSummary of the 2018 BOJ-IMES Conference Organized by the Institute for Monetary and EconomicStudies of the Bank of Japan” by Shigenori Shiratsuka

“Opening Remarks of the 2018 BOJ-IMES Conference Organized by the Institute for Monetary andEconomic Studies of the Bank of Japan” by Haruhiko Kuroda

“The Mayekawa Lecture: Whither Bank Regulation; Current Debates and Challenges” by Raghuram
G. Rajan“The Boundaries of Central Bank Independence: Lessons from Unconventional Times” by Athanasios
Orphanides

“The Implied Bail-in Probability in the Contingent Convertible Securities Market” by Masayuki
Kazato, Tetsuya YamadaIMES Newsletter June 2019
Do not reprint or reproduce without permission.
All correspondence about this issue should be sent toInstitute for Monetary and Economic Studies (IMES), Bank of Japan
2-1-1, Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-8660, Japan
Phone: +81-3-3279-1111
Fax: +81-3-3510-1265
E-mail: imes.journals-info@boj.or.jp
URL: https://www.imes.boj.or.jp/english/index.html
IMES Newsletter June 2019