Adapting to the New Normal:
Perspectives and Policy Challenges
after the COVID-19 Pandemic
Summary of the 2021 BOJ-IMES Conference
by Takuji Fueki, Ken Matsushita, Ichiro Muto,
Fumitaka Nakamura, and Shunichi Yoneyama

I. Introduction
The Institute for Monetary and Economic Studies (IMES) of the Bank of Japan (BOJ)
held the 2021 BOJ-IMES Conference, entitled “Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic,” on May 24–25, 2021.1 The
conference was held online for the first time since its inauguration in 1983. It covereda wide range of issues regarding economic perspectives and policy challenges in the
post-pandemic economy.
The conference began with the opening remarks delivered by Haruhiko Kuroda,
Governor of the BOJ. The Mayekawa Lecture, presented by Olivier J. Blanchard(Massachusetts Institute of Technology), followed. The keynote speech was given by
Athanasios Orphanides (Massachusetts Institute of Technology), honorary adviser tothe IMES. The presentation sessions had three presenters: Atif R. Mian (Princeton
University), Markus K. Brunnermeier (Princeton University), and David Autor (Massachusetts Institute of Technology). The policy panel discussion, moderated by Kazuo
Takuji Fueki:
Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:takuji.fueki@boj.or.jp)
Ken Matsushita: Director-General, Institute for Monetary and Economic Studies, Bank of Japan (currently,
Ochanomizu University)
Ichiro Muto: Associate Director-General, Head of Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: ichirou.mutou@boj.or.jp)
Fumitaka Nakamura: Director, Institute for Monetary and Economic Studies, Bank of Japan (currently, International Monetary Fund, E-mail: FNakamura@imf.org)
Shunichi Yoneyama: Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:shunichi.yoneyama@boj.or.jp)..........................................................................................................................................
The conference organizers wish to express their sincere gratitude to the two IMES honorary advisers, Athanasios
Orphanides and Carl E. Walsh, the IMES chief councillor Kazuo Ueda, and all other conference participants forthe thought-provoking presentations and discussions. The views expressed throughout this summary are those of
the attendants and do not necessarily reflect those of their respective institutions. All remaining errors are theauthors’ responsibility.
1. See Appendix 1 for the program. See Appendix 2 for a list of participants; their aﬃliations are as of May
24–25, 2021.

MONETARY AND ECONOMIC STUDIES / NOVEMBER 2021
DO NOT REPRINT OR REPRODUCE WITHOUT PERMISSION

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Ueda (Kyoritsu Women’s University and University of Tokyo), the IMES chief
councillor, was comprised of six panelists: Gita Gopinath (International MonetaryFund), Charles L. Evans (Federal Reserve Bank of Chicago), Tiﬀ Macklem (Bank of
Canada), Philip R. Lane (European Central Bank), Stefan Ingves (Sveriges Riksbank),
and Masazumi Wakatabe (BOJ). The concluding remarks were delivered by Carl E.
Walsh (University of California, Santa Cruz), honorary adviser to the IMES.

II. Opening Remarks
In his opening remarks, Kuroda posed two questions as the central theme of the conference: what the so-called new normal that emerges after the pandemic will look like,and how we are going to adapt to this new normal.2 He then presented three issues toprovide some common ground for developing discussions at the conference.
First, Kuroda discussed economic perspectives after the COVID-19 pandemic. He
pointed out that unevenness was the most important feature of the recession and recovery phases caused by the pandemic and suggested that it could reinforce the increasing trends in saving, inequality, and debt. He highlighted structural changes that had
taken place during the pandemic, especially the wide and rapid spread of digitalization,and emphasized that whether such changes would lead to economy-wide productivity
growth was another important point. Second, he reviewed policy challenges facing central banks. He noted that policy challenges would likely change through the recovery
phases and raised a broader range of issues, including economic inequality, that had
become even more apparent during the pandemic. He added that central banks wereseeing a widening in the scope of issues that they should take into account. Third, heargued that, although the precise nature of the post-pandemic world remained to beseen, the world had certainly undergone irreversible change as it had adapted to thepandemic by expanding and accelerating digitalization. He stressed that by building on
the discoveries and experiences during this health crisis, people should forge ahead andshape the new society and economy—the new normal.
Kuroda mentioned that academic disciplines, including economics, had made asignificant contribution in the current crisis and that cross-discipline approaches were
providing timely policy suggestions, as, for example, through joint research in epidemiology and economics, or the use of digital technology to analyze mobility data.
He then concluded his remarks by looking forward, also during this conference, to abroad spectrum of views of and insights into the post-pandemic economy and policies.

III. The Mayekawa Lecture: Fiscal Policy under Low Rates: Taking
Stock
Blanchard began his lecture by discussing interest rates now and in the future.3 He
pointed out that a decline in interest rates had been a long-term historical trend, whichappeared mainly driven by an increase in saving due to increases in income and life................................
2. For details, see Kuroda (2021).
3. For details, see Blanchard (2021).

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Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic

expectancy and an increase in the liquidity of safe assets. He stated that, based on thehistorical trend and the implied probabilities of interest rates calculated from option
prices, the low interest environment would likely continue. He then argued that thesafe neutral interest rate, which was consistent with potential output, would be very
likely less than the growth rate. He also mentioned that the zero lower bound (ZLB)
would continue to limit the policy space of central banks for some time to come.
Blanchard then discussed how government debt sustainability could be assessedin the low interest rate environment. He suggested that debt sustainability could beassessed by the probability of the country being able to generate a primary surplus sufficient to cover interest payments over the next 5–10 years. He argued that it would
depend not only on the level of debt but on many factors such as the maturity structureof debts and the distribution of diﬀerences between the safe neutral interest rate andthe growth rate. In addition, he mentioned the role played by central banks in eliminating multiple equilibria regarding debt sustainability. He stated that central banks
could prevent self-fulfilling non-fundamental investors’ runs on government debt byusing their deep pockets as a large stable investor. However, he mentioned that moreconsideration would be needed about what should be done if investors’ concerns partly
reflected some negative changes in sovereign fundamentals.
Blanchard then turned to the question of the optimal level of debt in the current
low interest rate environment. To address this question, he explored the possibility ofcapital over-accumulation in the economy (“dynamic ineﬃciency”). He suggested thatthe rate we should look at in assessing dynamic ineﬃciency was a weighted averageof the safe interest rate and the average marginal product of capital. He then argued
that the advanced economies were probably not in the dynamic ineﬃciency region, butclose to it. He stated that the bottom line was that, however, the government could issue
debt in the current environment if there were good uses for it, as the cost of crowdingout capital by issuing debt would be small, because private capital was just not highly
productive.
Finally, Blanchard gave some practical advice to policy makers. He argued that in
the case of no ZLB, the government should reduce its outstanding debt slowly and thecentral bank would set an appropriate interest rate such that potential growth could beachieved. He added that this was not the current world and that the ZLB was relevant.
He then claimed that in this case, the government would need to continue to have an
expansionary fiscal policy. In addition, he stressed that fiscal spending was required
to boost aggregate demand against the COVID-19-related downturn. He then statedthat we could maintain output at potential without having to increase debt largely if we
conducted public investment projects which stimulated private investment, with respect
to both public health and global warming issues.
From the floor, Kazumasa Iwata (Japan Center for Economic Research) asked
about the optimal size of consolidated government debt. Blanchard argued that it
would depend among other things on how governments weighted the welfare of various
generations. Andrea Gerali (Banca d’Italia) asked for views on radical policies thatwould blur the traditional distinction between the government and the central bank.
Blanchard replied that a clear separation between the tasks of the central bank andthose of the fiscal authority was preferred. He expressed concern about the increas-3

ing influence of central banks in recent years on more political issues such as climatechange. Finally, Orphanides asked about the impact of quantitative easing (QE) on thesustainability of sovereign debt. Blanchard agreed that central banks should employ
QE to compress interest rate spreads when the ZLB binds. He noted that QE worked inpractice, but, because it was a swap of liabilities of the consolidated government, there
was no clear theoretical answer as to why it worked.

IV. Keynote Speech: The Power of Central Bank Balance Sheets
Orphanides gave a positive assessment of the monetary policies implemented during
the COVID-19 pandemic of 2020 and the activation of central bank balance sheets, anddiscussed the guidelines for monetary policies in the post-pandemic new normal.4
Orphanides pointed to the fact that the central banks of Japan and other developed countries expanded their balance sheets in the wake of the COVID-19 pandemic
at an unprecedented scale and speed, both in terms of level and as a ratio of GDP. He
credited balance sheet policies with (i) mitigating the damage to the economy causedby the pandemic, (ii) preventing a meltdown of financial markets and institutions, and(iii) improving government debt dynamics by facilitating fiscal expansion. He also said
that the experience of operating monetary policies under the ZLB constraint on nominal interest rates, which was faced during the financial crisis in Japan in the late 1990s
and the Lehman collapse in 2008, contributed to the success of the balance sheet policies. He then pointed out two policy implications. First, given the relationship between
central bank policy and market trends in March 2020, expanding the eligibility of assets for purchase in balance sheet policies would have had the most important eﬀect
on market stabilization. Second, the coordination between monetary and fiscal policies
should be eﬀective in situations where government debt needs to be expanded, because
QE by central banks lowers the cost of fiscal refinancing through pushing down theterm premium on government bonds. In addition, regarding the second point, he statedthat excessively debt-averse fiscal policies could be self-defeating. He concluded his
speech by saying that the active use of balance sheet policies has fiscal and distributional consequences, but even in such cases, central banks should avoid engaging inother mandates and maintain their independence by staying true to delivering on pricestability in accordance with basic principles.
From the floor, Gerali noted that a recent study showed a disconnect between
money aggregates and inflation over the past 50 years and asked for views on the significance of using balance sheet policies in normal times rather than in times of crisis,and on the move to an average inflation targeting framework in the United States. In
response, Orphanides made the following three observations. First, the velocity ofmoney was unstable under the ZLB, and money aggregates did not correspond to thesize of the central bank’s balance sheet. Second, the use of balance sheet policies was
the most eﬀective and important in situations where the equilibrium real interest rate
is close to zero, as recently in developed countries. Third, in order to achieve pricestability in the long run, it is important that the guide of monetary policies should be................................
4. For details, see Orphanides (2021).

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Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic

simple, in other words, a systematic response, such as setting a 2 percent inflation rate
as the benchmark for price stability and then reducing the balance sheet if the actual
inflation rate exceeds 2 percent.

V. Presentation Sessions
A. A Goldilocks Theory of Fiscal Policy
Mian addressed the trade-oﬀ facing governments when the economy was close to the
ZLB on nominal interest rates. On the one hand, the government needs to run fiscal
deficits to generate enough demand to avoid the ZLB. On the other hand, the government has to ensure fiscal sustainability. To this end, he proposed a tractable model offiscal policy. He showed analytically that there existed a “Goldilocks zone” for fiscal
policy, arguing that this zone represented a region of appropriate debt and deficit spacein which (i) the government could boost fiscal deficits and aggregate demand to avert
the ZLB, allowing the economy to be at its maximum potential, (ii) the interest rate on
government debt was lower than the growth rate, and (iii) the government could ensure
fiscal sustainability. He calibrated the model to the U.S. economy to assess whether thecurrent choice of government debt and deficit in the U.S. sat in the Goldilocks zone. He
found that the primary deficits in the U.S. were far above the Goldilocks zone, which
implied that some sort of fiscal consolidation might be needed at some point in the
future. He claimed that fiscal consolidation had to be implemented through progressive
taxation rather than regressive taxation. This was because regressive taxation would
have a greater negative eﬀect on low-income households whose marginal propensity
to consume is relatively high, and this in turn would reduce aggregate demand andpotentially push the economy into the ZLB.
From the floor, Kosuke Aoki (University of Tokyo) asked whether it was optimal
to increase debt until the marginal benefit of adding debt services became zero. Mian
replied that it was necessary to take the potential cost of raising debt into account whenanalyzing welfare consequences in the model. From a practical perspective, it wasgoing to be harder for governments to raise the level of government debt in order to satiate too much demand for debt, because large adjustments of deficits were required toensure fiscal sustainability. Etsuro Shioji (Hitotsubashi University) stated that, while
government bonds for individual investors tend to be held by the rich, much of government debt is held by the banking sector, and that bank deposits (as well as cash)
account for a large share of wealth held by the less well oﬀ. He asked whether this fact
was taken into account in the analysis. Mian agreed with the statement. He argued that
he was not ignoring the fact and had already analyzed the case of multiple financial
assets in another paper.5 Ueda asked whether Japan was in the Goldilocks zone. Mian
replied that it depended on whether long-run inflation expectations were anchored at 2
percent in Japan. This was because the Goldilocks zone would be fragile depending on
how deep into the ZLB Japan currently was.

................................
5. For details, see Mian, Straub, and Sufi (2021).

5

B. Debt as Safe Asset: Mining the Bubble - FTPL with a Bubble & MMT
Brunnermeier presented a theoretical framework for explaining whether governments
could run permanent primary budget deficits without devaluating government debt
through inflation, and whether a bubble could emerge in government bonds as safe
assets.6 First, as a starting point for discussion, he showed that the Fiscal Theory of thePrice Level (FTPL) was not consistent with observed facts. In particular, he pointed
out that Japan had not experienced inflation despite having primary budget deficits inmost years since the 1960s, which indicated the existence of a bubble where the valueof government debt was significantly higher than its theoretical value based on the
FTPL. In order to explain this phenomenon, he introduced a novel perspective of safe
assets in an incomplete market setting. Specifically, in addition to the traditional valueof expected discounted future cash flows, government debt had the value of expecteddiscounted future service flows as partial insurance against idiosyncratic shocks, i.e.,the convenience yield. Then, employing an asset pricing model with government debt
as a safe asset, he showed that when idiosyncratic shocks increased in recessions, thegovernment bond became more valuable since the value of service flows appreciated.
He noted that one implication for fiscal debt sustainability derived from the model wasthat safe assets could lose their status because a bubble could burst. Using the model
calibrated to the U.S. economy, he showed the “Debt Laﬀer Curve.” If a government
increased the pace of bond issuance to a certain level, it could increase the value ofgovernment debt and achieve a primary balance deficit in the steady state, while if it
increased the pace of bond issuance above that level, the value of government debt
would decrease by diluting the value of existing bonds and the primary balance deficit
in the steady state would be reduced. Based on this result, he concluded that, contrary
to the Modern Monetary Theory (MMT), it would be impossible for a government toexpand its budget deficit limitlessly without depreciating its government debt by inflation.
From the floor, Toshitaka Sekine (Hitotsubashi University) asked whether demandfor hedging against longevity risk might also generate the service flows of government
debt. Brunnermeier agreed with him and replied that demand for hedging longevity
risk might be higher especially in countries with inadequate pension systems since
longevity risk as an idiosyncratic shock would have a significant impact. Andrea Raﬀo(Federal Reserve Board) first noted that, given that the model involves idiosyncraticrisk and not inequality, financial developments over the past decades should have reduced the insurance value of public debt as safe asset, which is not the case. That said,
he added that probably the implications of the model were almost the same if we reinterpreted households’ risk as country-specific risks, suggesting that the internationalrole of U.S. treasuries may explain the sizable insurance value of this safe asset. Brunnermeier agreed with the points. Aoki asked how a deterioration in market functioning
and liquidity would aﬀect the size of bubbles and the price level. Brunnermeier repliedthat in a closed economy the consequences of the analysis did not change significantly,
but in an open economy the government debt of one country would be more likely tolose its status as a safe asset since other countries’ government debt would substitute................................
6. For details, see Brunnermeier, Merkel, and Sannikov (2021).

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Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic

it. Orphanides argued that massive interventions by central banks played an importantrole in maintaining the safe asset status of government debt during the market turmoil
in March 2020, and stated that according to the model it was important for central
banks to act extremely carefully to protect the status of government debt as a safe asset. Brunnermeier replied that it was true as long as there were no solvency or debt
sustainability issues.
C. The Nature of Work After the COVID Crisis: Too Few Low-Wage Jobs
Autor presented his views on the nature of work after the COVID-19 pandemic.7 He argued that there would be too few low-wage jobs after the pandemic due to two changes
that occurred during the pandemic: telepresence and automation forcing. First, he explained telepresence as a form of automation that enables virtual participation in thework environment without physical presence, and he pointed out that the most obvious
change during the health crisis was the spread of telepresence. He argued that the benefits of telepresence would be distributed unequally: telepresence would benefit highwage workers by adding flexibility, such as work-from-home, while disproportionately
reducing demand for low-paid in-person services, especially in urban areas. He addedthat this was problematic because such low-wage jobs had increased until this crisis.
Second, he pointed to automation forcing during the pandemic and a resulting sharp
increase in new patent applications that support work-from-home technologies, andargued that such innovations might work against low-wage workers. He noted that innovations shaped what occupations grew by showing that the majority of jobs that had
been created in the past few decades were new title jobs. Since automation technologies
would likely continue increasing, more high-skilled jobs would be created while there
would be less demand for low-skilled jobs. In conclusion, he argued that reallocationout of low-wage jobs was not good news in disguise because a decline in low-wage
work would not raise demand for middle-wage jobs. Generating good middle-wagejobs in a post-pandemic setting would be a challenge facing policymakers.
From the floor, Kiyohiko G. Nishimura (National Graduate Institute for Policy
Studies) asked how the decline in employment in low-wage jobs would aﬀect inflationand the capacity of central banks to achieve the goal of maximum employment. Autor
replied that the eﬀect on inflation was limited since demand for the low-paid in-person
services was fairly elastic and such services were not a central driver of inflation. He
added that the recovery was uneven, and some labor markets could become very tightwhile others related to in-person services could remain slack and that this would be apotential complexity for monetary policy. Aoki asked about the eﬀect of the decline
in employment in low-wage jobs on human capital accumulation. Autor replied thatit potentially increased the need for people to make human capital investments thatmove them toward the middle or upper end of education. This was because wages wereunlikely to rise under the current labor market slack, reducing a less-educated worker’s
incentive for sticking to their low-paid jobs and choosing not to go for higher education.

................................
7. For details, see Autor and Reynolds (2020).

7

VI. Policy Panel Discussion
In the policy panel discussion, moderated by Ueda, six panelists, Gopinath, Evans,
Macklem, Lane, Ingves, and Wakatabe, expressed their views on the new normal induced by the pandemic and the related policy challenges and prescriptions.
A. Remarks by Panelists
Gopinath presented the issues of diverging recoveries in the world. She stressed that
there was a significant risk of diverging recoveries among countries. Specifically, theprojection for an annual loss in per capita income relative to the growth path in theabsence of the pandemic between 2020 and 2024 was around 2 percent for advanced
economies, but 6 percent for emerging and developing economies, excluding China.
She noted that this situation was opposite to the post-global-financial-crisis periods,
in which the recovery was slow in advanced economies while rapid in emerging anddeveloping economies. She argued that the on-going diverging recoveries were an important factor in considering the post-pandemic new normal, and raised three future
policy challenges: (i) a sharp rise in interest rates, which could potentially cause financial turmoil in emerging and developing economies, (ii) the loss of human capital due
to lengthy school closures and the resulting decrease in medium-term output, and (iii)diverging recovery within a country, caused by the pandemic and resulting automation
forcing. Finally, she added that climate risk was another big and important challenge
in the world and that debt forgiveness and debt restructuring would be needed for somedeveloping countries so that they can address the climate transition as well as the digitaltransition.
Evans discussed the role that resource pressures and inflation expectations mightplay in the path of inflation over the next few years. He observed that core inflation
increased to 1.8 percent in March 2021 and would likely increase further in April. To
address concerns some commentators had that the U.S. economy was on a path to highinflation, he discussed recent work by Bianchi, Fisher, and Melosi (2021), who consider a number of scenarios for the potential inflationary consequences of the American Rescue Plan Act (ARP) through the lens of diﬀerent versions of the workhorse
inflation-expectations-augmented Phillips curve. In explaining the models’ simulation
results, he noted that the coeﬃcient of resource utilization in the Phillips curve wassmall, so that the resource pressures on their own would have a limited impact on inflation in most scenarios. To generate larger and persistently higher inflation rates, higher
inflation expectations were needed. He then added that the measures of inflation expectations, albeit imperfect, were just back to where they were in 2013 and did notindicate inflation was spiraling out of control. Accordingly, he thought that the risk of
unacceptably high and persistent inflation in the coming years was low and stressed thatthe recent rise in inflation did not appear to be the precursor of a persistent movement
to undesirably high levels of inflation.
Macklem discussed divergent post-pandemic recoveries in Canada. He noted thatthe economy was recovering as it had shown more resilience to the pandemic than
expected, underpinned by the combination of overwhelming fiscal and monetary policy measures. He stressed, however, that the recovery had been uneven. The recovery

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Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic

had been slow especially in the hardest-hit sectors such as retail trade, entertainment,
and air transportation. Low-wage jobs had been severely aﬀected and remained significantly below their pre-pandemic level. The number of long-term unemployed reached
its highest level in almost 30 years. He added that the impact of the pandemic on theability to work had also been uneven due partly to the digital divide. He noted that inspite of the recent upward revision in economic growth in Canada, a complete recovery
was still far away, and he stressed the continuing need for extraordinary fiscal and monetary support. He added that a complete recovery meant a healthy job market with good
opportunities for all, including low-wage workers, women, and young people, and it
meant that businesses had the confidence they needed to invest and increase capacity.
He concluded that under such a complete recovery both households and businesses
would be able to count on inflation being sustainable at the 2 percent target.
Lane discussed the challenges facing central banks. He first classified the next few
years into three phases: (i) a rebound, which would be for the rest of this year, (ii) a
recovery, which would be for the next year at least, and (iii) a transition to the newsteady state with fiscal support phasing out, which would be two years from now. He
pointed out that this three-phase sequence would make it diﬃcult for central banks
to diﬀerentiate short-term from medium-term dynamics, posing a challenge for central banks that were focused on medium-term developments. He added that extracting
macro signals from the data would become even more diﬃcult because of the array ofasymmetries generated by the pandemic, such as manufacturing versus services, oldversus young, and public sector versus private sector. Specifically, there would be substantial relative price movements and reallocations across firms and industries due tosuch asymmetries. He stressed that the new steady state would involve a lot of uncertainties because there were big structural changes underway, such as in the way wework and the way businesses were operated. The impact and consequence of digitalization and the structural changes were also highly uncertain. He noted that there were
not enough historical examples to guide central banks in this situation. He pointed outthat it was important for central banks to have a broader range and greater volume of
information about the economy, including private agents’ inflation expectations.
Ingves discussed challenges in the aftermath of the pandemic from the perspectiveof a small open economy. He first emphasized the importance of international trade for
Sweden. He noted that world trade had recovered rapidly, underpinned by expansionary
monetary and fiscal policies, and had driven the recovery in Sweden. He added that
expansionary monetary policy in Sweden worked well in the sense that this healthcrisis had not morphed into a financial crisis and that the Swedish economy was gettingback to its pre-pandemic growth path. However, he expressed concern that there was a
massive diﬀerence in recovery between in-person-contact intensive sectors and others
and that many low-income jobs had been lost, resulting in an increase in long-term
unemployment. He added that the Swedish labor market had a structural problem ofhigh unemployment among young workers and immigrants, which could not be fixedby monetary policy. Moreover, he pointed out that unemployment rates had been low
for middle- and high-income workers, even during the pandemic, and housing prices
had increased dramatically, which would be an issue for some years to come. He closed
his remarks by stating the importance of structural change once the economy was back9

to the original growth path: the only way to raise the standard of living in a small open
economy was persistent and timely structural change.
Wakatabe discussed the diﬀerences in the impact of the pandemic and the subsequent recovery as well as the challenges and opportunities looking ahead, from theJapanese perspective. He first pointed out that, despite less stringent public health measures in Japan compared with the U.S. and Europe, real GDP had declined sharply inJapan, as in the U.S. and Europe. He argued that this was related to voluntary restrictions of mobility, possibly due to Japan’s aging population. After reviewing policy responses under the health crisis, he turned to diﬀerences in the impact of the pandemic,
which had shown up acutely in the labor market. He explained that employment for
non-regular workers had declined sharply in Japan after April 2020 and stressed thatthe negative eﬀects of the pandemic had been tilted toward low-income earners, which
was a common policy challenge across countries. Another challenge he raised was theissue of productivity, given the wide and rapid expansion of telework and working fromhome. He mentioned a study showing that productivity when working from home waslower than that at the workplace in Japan, the opposite of what was reported in the
U.S. He closed his remarks by arguing that the Japanese economy would be able toimprove productivity if it took on-going changes as an opportunity and adapted to digitalization by undertaking business transformation, investing more on information andcommunication technology, and changing rules and regulations.
B. Discussion among the Moderator and Panelists
Following the panelists’ remarks, Ueda asked them two questions. First, he asked
whether central banks had a strategy to overcome a dynamic inconsistency problem
whereby central banks might have the incentive to deviate from forward guidance, e.g.,by allowing inflation to overshoot the 2 percent target. Evans replied that inflation
could overshoot the 2 percent target for some time under the average inflation targeting
framework, but the extent of the overshoot would not be unacceptably high, so he was
not concerned about inflation getting out of hand. Lane raised a point about central
banks’ communication regarding large-scale asset purchases and noted that one challenge would be how to communicate the course of asset purchases as the economy wasrecovering. Macklem referred to the diﬀerences between flexible inflation targeting
and average inflation targeting, remarking that it would be interesting to see how these
diﬀerent targeting strategies would play out in coming years. Ingves reflected that QE
and negative interest rate policy posed communication challenges, which were completely diﬀerent from what had been thought when the interest rate had not yet hit the
ZLB. In considering communication, he emphasized that monetary policy was not amathematical formula but a decision reached by a group of several voting members.
Ueda next asked the panelists to what extent central banks should be concerned
about distributional issues, such as polarization of employment and income inequality.
Gopinath brought up two challenges facing central banks: (i) monetary policy, which
aimed at maximum and inclusive employment, would have important consequences for
asset markets and the financial sector, and (ii) monetary policy would face the structuralchange of divergent job recovery in the economy. Wakatabe pointed out that, at a basic
level, central banks had to focus on macroeconomic stabilization, but at the same time

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Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic

they needed to pay attention to the consequences of their policy on other important
issues such as inequality and climate change, and in this regard, central banks’ analysesof these eﬀects were warranted. Macklem commented that monetary policies could
not target specific groups, but central banks should be alive to distributional issues
and would have to look at more disaggregated eﬀects of monetary policies. He addedthat the eﬀects of monetary policies, be they traditional or unconventional policies,
on income and wealth inequalities could move in the opposite direction. Lane raised
the point that the income distribution eﬀect was diﬀerent from the wealth eﬀect bymentioning the European monetary union countries as an example. He then addedthat taking the distributional eﬀects of monetary policy into account would not makepolicymaking worse. Evans reflected that monetary policy could not by itself solve theissue of income inequality, but he added that the most recent adjustments in the Federal
Open Market Committee’s monetary policy framework were aimed at providing broadbased and inclusive benefits for those in the labor market.
After these two questions, Ueda asked the panelists to raise any further questions.
Regarding the issues presented by Gopinath, Ingves asked for her views about the riskthat a number of developing countries would not get back to their original growth pathdue to the scarcity of vaccines. Gopinath replied that the scarcity of vaccines was asolvable problem, although the current situation was that some countries had vaccine
doses in excess of what they would need and other countries, especially developing
countries, were short of vaccine doses. She noted that there was international momentum to solve the problem. She added that the challenge was how quickly enoughvaccine doses would become available to the countries that needed them, and how
promptly these countries ramped up preparations for vaccinations.

VII. Concluding Remarks
In the concluding remarks, Walsh summarized the presentations and discussions at
the conference. He noted that this conference covered a broad range of issues caused
or exacerbated by the pandemic, including fiscal policy sustainability, changes in
the nature of work, and distributional consequences. First of all, he argued that thelecture and presentations by Blanchard, Mian, and Brunnermeier all focused on fiscal
policy, touching on debt sustainability in a low interest rate environment, factorsthat aﬀect the value of government debt, such as convenience yield, and the role ofgovernment debt as a safe asset. He pointed out that the argument of debt as a safe
asset was paralleled with the traditional money-in-the-utility function approach to
explaining the demand for money. Based on this interpretation, he raised the issue of
institutional reform of fiscal authorities as an analogy for the establishment of central
bank independence after the experience of hyperinflation. In terms of labor market
conditions, he pointed to the importance of understanding how the pandemic and preexisting underlying trends had changed the distribution of economic activity, aﬀected
technological developments such as automation, and altered the nature of work, as
Autor presented. As for monetary policy, he argued that the central bank balance sheet
policies during the pandemic provided indirect easing by facilitating fiscal expansion,11

as pointed out by Orphanides. He then noted that this facilitating role of monetary
policy would remain important, and it highlighted the need for policy coordination.
As for the policy panel discussion, he touched upon the issues raised by the panelists
on perspectives and policy challenges after the COVID-19 pandemic, such as inflation
expectations, the measurement of economic slack, and the unevenness of economic
recovery. He stated that, although the distributional issues raised by some presentersand panelists were indeed important, it was less clear whether central banks had thetools necessary to combat inequality. Finally, he concluded that the presentations
and discussions in the conference had oﬀered insights into the new normal of thepost COVID-19 economy, and the conference had been very informative and enjoyable.

12 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2021

Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic

References
Autor, David, and Elisabeth Reynolds, “The Nature of Work after the COVID Crisis: Too Few LowWage Jobs,” The Hamilton Project, Essay 2020-14, Brookings Institution, 2020.
Bianchi, Francesco, Jonas D. M. Fisher, and Leonardo Melosi, “Some Inflation Scenarios for theAmerican Rescue Plan Act of 2021,” Chicago Fed Letter, 453, Federal Reserve Bank ofChicago, 2021.
Blanchard, Olivier J., “The Mayekawa Lecture: Fiscal Policy under Low Rates: Taking Stock,”
Monetary and Economic Studies, 39, Institute for Monetary and Economic Studies, Bankof Japan, 2021, pp. 23–34 (this issue).
Brunnermeier, Markus K., Sebastian Merkel, and Yuliy Sannikov, “Debt as Safe Asset,” mimeo,
2021.
Kuroda, Haruhiko, “Opening Remarks,” Monetary and Economic Studies, 39, Institute for Monetaryand Economic Studies, Bank of Japan, 2021, pp. 19–22 (this issue).
Mian, Atif, Ludwig Straub, and Amir Sufi, “The Saving Glut of the Rich,” mimeo, 2021.
Orphanides, Athanasios, “The Power of Central Bank Balance Sheets,” Monetary and Economic
Studies, 39, Institute for Monetary and Economic Studies, Bank of Japan, 2021, pp. 35–54(this issue).

13

APPENDIX 1: PROGRAM
Monday, May 24, 2021

Chairperson:

Kazuo Ueda, Kyoritsu Women’s University andUniversity of Tokyo

Opening Remarks
Speaker:

Haruhiko Kuroda, Bank of Japan

Mayekawa Lecture: Fiscal Policy under Low Rates: Taking Stock
Lecturer:

Olivier J. Blanchard, Massachusetts Institute ofTechnology

Session 1: A Goldilocks Theory of Fiscal Policy
Presenter:

Atif R. Mian, Princeton University

Session 2: Debt as Safe Asset: Mining the Bubble - FTPL with a Bubble & MMT
Presenter:

Markus K. Brunnermeier, Princeton University

Tuesday, May 25, 2021

Chairperson:

Masaaki Kaizuka, Bank of Japan

Keynote Speech: The Power of Central Bank Balance Sheets
Speaker:Athanasios Orphanides, Massachusetts Institute ofTechnology

Session 3: The Nature of Work After the COVID Crisis: Too Few Low-Wage Jobs
Presenter:

David Autor, Massachusetts Institute of Technology

14 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2021

Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic

Policy Panel Discussion
Moderator:

Kazuo Ueda, Kyoritsu Women’s University andUniversity of Tokyo

Panelists:

Gita Gopinath, International Monetary FundCharles L. Evans, Federal Reserve Bank of Chicago
Tiﬀ Macklem, Bank of Canada
Philip R. Lane, European Central Bank
Stefan Ingves, Sveriges Riksbank
Masazumi Wakatabe, Bank of Japan

Concluding Remarks
Speaker:

Carl E. Walsh, University of California, Santa Cruz

APPENDIX 2: LIST OF PARTICIPANTS
Seiji Adachi
Masayoshi Amamiya
Kosuke AokiÓscar ArceDavid Autor
Paul Beaudry
Jan Marc Berk
Olivier J. Blanchard
Markus K. Brunnermeier
Chayawadee Chai-anantJulian di Giovanni
Luci EllisCharles L. Evans
Takuji Fueki
Hiroshi Fujiki
Shin-ichi Fukuda
Carlos Garriga
Andrea Gerali
Petra Gerlach
Gita Gopinath
François Haas

Bank of Japan
Bank of Japan
University of Tokyo
Banco de España
Massachusetts Institute of Technology
Bank of Canada
De Nederlandsche Bank
Massachusetts Institute of Technology
Princeton University
Bank of Thailand
Federal Reserve Bank of New York
Reserve Bank of Australia
Federal Reserve Bank of Chicago
Bank of Japan
Chuo University
University of Tokyo
Federal Reserve Bank of St. Louis
Banca d’Italia
Swiss National BankInternational Monetary Fund
Banque de France

15

Hideo Hayakawa
Sui-Jade Ho
Johannes Hoﬀmann
Daisuke Ikeda
Nobuo Inaba
Stefan Ingves
Takatoshi Ito
Kazumasa Iwata
Masaaki Kaizuka
Goushi Kataoka
Masahiro Kawai
Yukinobu Kitamura
Keiichiro Kobayashi
Hirohide Kouguchi
Haruhiko Kuroda
Philip R. Lane
Tiﬀ Macklem
Takako Masai
Ken Matsushita
Atif R. Mian
Daisuke Miyakawa
Benoit Mojon
Kazuo Momma
Ichiro Muto
Fumitaka Nakamura
Toyoaki Nakamura
Marianne A. Nessén
Makoto Nirei
Kiyohiko G. Nishimura
Asahi Noguchi
Athanasios Orphanides
Gael Price
Andrea Raﬀo
Lathaporn Ratanavararak
Tetsuya Sakamoto
Krislert SamphantharakÇağrı Sarıkaya
Yasuyuki Sawada
Jochen Schmittmann
Toshitaka Sekine

Tokyo Foundation for Policy Research
Bank Negara Malaysia
Deutsche Bundesbank
Bank of Japan
Ricoh CO., LTD.
Sveriges Riksbank
Columbia University
Japan Center for Economic Research
Bank of Japan
Bank of Japan
Economic Research Institute for Northeast Asia
Rissho University
Keio University
Bank of Japan
Bank of Japan
European Central Bank
Bank of Canada
Bank of Japan
Bank of Japan
Princeton University
Hitotsubashi University
Bank for International Settlements
Mizuho Research & Technologies
Bank of Japan
Bank of Japan
Bank of Japan
Sveriges Riksbank
University of Tokyo
National Graduate Institute for Policy Studies
Bank of Japan
Massachusetts Institute of Technology
Reserve Bank of New ZealandFederal Reserve Board
Bank of Thailand
Bank of Japan
Bank of Thailand
Central Bank of the Republic of Turkey
Asian Development BankInternational Monetary Fund
Hitotsubashi University

16 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2021

Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic

Tokiko Shimizu
Woon Shin
Mototsugu Shintani
Etsuro Shioji
Ludwig Straub
Chantavarn Sucharitakul
Amir Sufi
Hitoshi Suzuki
Karim Triki
Suh Ping Tu
Shinichi Uchida
Kazuo Ueda
Tuomas Välimäki
Kenji Wada
Masazumi Wakatabe
Carl E. Walsh
Toshiaki Watanabe
Tsutomu WatanabeMark Wynne
Shunichi Yoneyama

Bank of Japan
Bank of Korea
University of Tokyo
Hitotsubashi University
Harvard University
Bank of Thailand
University of Chicago
Bank of Japan
Embassy of France and Banque de France
Monetary Authority of Singapore
Bank of Japan
Kyoritsu Women’s University and University of Tokyo
Bank of Finland
Bank of Japan
Bank of Japan
University of California, Santa Cruz
Hitotsubashi University
University of Tokyo
Federal Reserve Bank of Dallas
Bank of Japan

17

18 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2021