Monetary Policy:
Lessons Learned and Challenges Ahead
Summary of the 2017 BOJ-IMES Conference
Organized by the Institute for Monetaryand Economic Studies of the Bank of Japan
by Ko Nakayama and Shigenori Shiratsuka

I. Introduction
The Institute for Monetary and Economic Studies (IMES) of the Bank of Japan (BOJ)
held the 2017 BOJ-IMES Conference, entitled “Monetary Policy: Lessons Learned
and Challenges Ahead,” on May 24–25, 2017, at the BOJ head oﬃce in Tokyo.1 The
conference attracted about ninety participants from academia, central banks, and international organizations. The participants discussed lessons learned from past experience
with unconventional monetary policies and clarified challenges in the future.
The conference began with the opening remarks delivered by Haruhiko Kuroda, theGovernor of the BOJ. Ben S. Bernanke (The Brookings Institution), the former Chairof the Board of Governors of the Federal Reserve System, presented the Mayekawa
Lecture. Mark Gertler (New York University), the honorary adviser of the IMES, gave
the keynote speech. In the paper presentation sessions, four papers were presented by
Jeﬀrey C. Fuhrer (Federal Reserve Bank of Boston), Benjamin Moll (Princeton University), Kenneth D. West (University of Wisconsin-Madison), and Ryo Kato (BOJ),
and discussed by the participants. The policy panel discussion moderated by Marvin
Goodfriend (Carnegie Mellon University), the honorary adviser of the IMES, was comprised of three panelists: Charles L. Evans (Federal Reserve Bank of Chicago), Hiroshi
Nakaso (BOJ), and Frank Smets (European Central Bank).
Ko Nakayama: Associate Director-General, Head of Economic and Financial Studies Division, Institute for
Monetary and Economic Studies, Bank of Japan (E-mail: kou.nakayama@boj.or.jp)
Shigenori Shiratsuka: Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:shigenori.shiratsuka@boj.or.jp)..........................................................................................................................................
The conference organizers would like to express their sincere gratitude to the IMES’s two honorary advisers, Mark
Gertler (New York University) and Marvin Goodfriend (Carnegie Mellon University), the IMES’s chief councillor
Kazuo Ueda (Kyoritsu Women’s University and University of Tokyo), and all other conference participants forthought-provoking presentations and discussions. The views expressed throughout this summary are those of theattendants and do not necessarily reflect those of their respective institutions. All remaining errors belong to theauthors.
1. See Appendix 1 for the program. See Appendix 2 for the list of participants; their aﬃliation is as of May
24–25, 2017.

MONETARY AND ECONOMIC STUDIES / NOVEMBER 2017
DO NOT REPRINT OR REPRODUCE WITHOUT PERMISSION

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II. Opening Remarks2
In his opening remarks, Kuroda presented three major research topics at the frontierof monetary economics and monetary policy making which the subsequent keynote
speech and the four presented papers addressed.
First, Kuroda focused on inflation and its expectations dynamics. He pointed outthat more research was needed on the micro-foundations of persistence in inflation expectations dynamics such as the role of information rigidity. Second, he mentioned thedeclining trend of the natural rate of interest. He stated that because of the declining
trend of the natural rate of interest combined with the eﬀective lower bound on nominal interest rates, many central banks in advanced economies developed new unconventional monetary policy tools. Third, he touched on heterogeneous agent macroeconomics and the distributional eﬀects of monetary policy. He mentioned that monetary
policy was not a tool well suited for dealing with inequality, but central banks were
not allowed to ignore the distributional eﬀects of monetary policy, especially if the
distributional eﬀects had an aggregate impact.
Thereafter, referring to the words of Maurice Obstfeld that “[the BOJ-IMES Conference is] a venue in which abstract monetary theory and practical policy questions
can comfortably be discussed in full depth and side by side,” Kuroda expressed hishope that this year’s conference would produce further insights into more eﬀective
central bank policymaking.3

III. The Mayekawa Lecture: Some Reflections on Japanese Monetary Policy4
Bernanke reviewed his past advice on the BOJ’s monetary policy management to see
how it had stood the test of time. Given that the 2 percent inflation target had not beenachieved despite the recent favorable performance of the economy, he reaﬃrmed theimportance of the continued pursuit of the inflation target to promote greater economic
stability in the future by restoring the ability of monetary policy to respond to recessionary shocks. In a related context, he suggested the very low equilibrium real interest
rate and the legacies of past policies were interacting to prevent faster progress toward
the inflation target in Japan. Finally, he talked about the need for contingency policy
options in case a tremendous adverse shock hit the economy. He argued that renewed
coordination between monetary and fiscal authorities would be desirable. Specifically,
he proposed (1) a commitment by the government to a new program of spending andtax cuts, and (2) a promise by the central bank to act as needed to oﬀset any eﬀects ofthe program on the path of the government debt-to-GDP ratio.
From the floor, a number of questions related to the fiscal-monetary coordination
were raised. Kazumasa Iwata (Japan Center for Economic Research) asked how monetary and fiscal authorities could come to a mutual understanding with regard to the................................
2. For details, see Kuroda (2017).
3. Maurice Obstfeld is currently the Chief Economist of the International Monetary Fund, and is a former
Honorary Adviser at the IMES.
4. For details, see Bernanke (2017).

2 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2017

Monetary Policy: Lessons Learned and Challenges Ahead

fiscal costs of the large-scale asset purchase program that would likely take place inthe process of monetary policy tightening. Bernanke replied that the inflation whichshould arise as a result of current aggressive monetary policy would make it possible
for the BOJ to exit from the current policy and, at the same time, should reduce fiscal problems if one focused on the consolidated balance sheet of the government andthe central bank. Takatoshi Ito (Columbia University and National Graduate Institutefor Policy Studies) and Franz Waldenberger (German Institute for Japanese Studies)
expressed concerns over fiscal discipline and, as an extreme case, the risk of hyperinflation. Bernanke insisted that it was important that the terms of the agreement withregard to monetary-fiscal coordination were laid out clearly and that this would help
to ensure fiscal discipline. In addition, he noted that central banks knew well how tomanage inflation and, at present, inflation was not a risk but a desirable goal.
Several questions and comments related to Japanese labor market and prices wereraised. Michael Dotsey (Federal Reserve Bank of Philadelphia) and Masahiro Kawai(University of Tokyo) asked Bernanke to clarify how a high price-wage inflation equilibrium could be achieved. Bernanke referred to government intervention in the annual wage bargaining in Japan, and the coordination of monetary and fiscal policy tostimulate aggregate demand in line with his earlier suggestion. Koichi Hamada (Yale
University) highlighted the success of economic policies undertaken by the current
administration in terms of cutting the unemployment rate and commented that issues
regarding the nominal price level were exaggerated by journalists and economists inJapan.
Kazuo Ueda (Kyoritsu Women’s University and University of Tokyo) asked about
the implications of the fact that, through the introduction of yield curve control (YCC),
the pace of the BOJ’s purchases of Japanese government bonds (JGBs) had become
endogenous, including the falling pace of JGB purchases. Bernanke observed that,
under YCC, an endogenous slowdown of the pace was already taking place, but thiswas neither tapering nor tightening. He also highlighted that YCC had the advantagethat it allowed the BOJ to reach the target yield without buying a large amount of JGBs.

IV. Keynote Speech: Rethinking the Power of Forward Guidance—
Lessons from Japan5
Gertler argued that the process of reflation from a liquidity trap in Japan had takenmuch longer than expected, even with state-of-the-art monetary policy since Governor Kuroda was appointed in March 2013. He argued that persistent low inflation andeconomic weakness across the globe could not be well explained by standard macroeconomic models. He mentioned the “forward guidance puzzle” as a typical example:
in such models, a central bank’s commitment with regard to the future course of monetary policy, i.e., forward guidance, produces a much faster recovery and reflation froma liquidity trap than observed in practice.
Considering the disconnect between models and the actual slow recovery and reflation, Gertler highlighted the role of adaptive expectations, in line with the remarks................................
5. For details, see Gertler (2017).

3

by Kuroda (2016) at the 2016 Jackson Hole Symposium. He presented a new Keynesian model with a hybrid of adaptive and rational expectations. He then went on toargue that the hybrid model was good at describing the Japanese experience in 2015
when the worldwide decline in commodity prices reduced actual inflation in Japan andconfounded expectations with regard to trend inflation.
Gertler indicated that one of the key lessons from the Japanese experience was thatin the absence of a history of inflation anchored at 2 percent, individuals needed to seesome inflation to believe that more was coming. He concluded the speech by stressingthat the best course for the BOJ was to continue its aggressive monetary policy andhope for some luck (favorable global shocks).

V. Paper Presentation Sessions
A. Japanese and U.S. Inflation Dynamics in the 21st Century6
Fuhrer presented his analysis on the dynamics of inflation and inflation expectationsin Japan and the U.S. over the past 20 years. He highlighted that one notable feature of the analysis was the use of survey-based expectations as a proxy for short- andlong-term expectations in a new Keynesian-style semi-structural model. He began bypresenting the empirical result that inflation dynamics appeared to be explained well by
short-term inflation expectations. He then argued that, in contrast to previous studies,no lag of inflation was necessary to account for inflation dynamics. Further, he presented the main finding of his analysis that although short-term inflation expectations
were anchored to their long-term counterparts, short-term expectations could persistently deviate from their long-term expectations due to their intrinsic persistence andexpectations regarding the output gap. In this context, he pointed out that the degree of
intrinsic persistence of short-term inflation expectations in Japan was more than twice
as high as that in the U.S. Using the Keynesian-style semi-structural model, he lastly
presented simulation results showing that the balance sheet expansion by the BOJ had
raised both short-term inflation expectations and actual inflation.
As the discussant, Mototsugu Shintani (University of Tokyo) made three comments. First, he mentioned the diﬀerences in the specification of short-term inflation
expectations dynamics between the analysis presented and that in Fuhrer (2012). He
observed that the two specifications led to quite diﬀerent policy implications. Second,
he commented on the relationship between the model presented and trend inflation
models examined in the recent literature. Finally, he asked about the source of the
intrinsic persistence in short-term expectations. In response to the three comments,
Fuhrer first answered that some results of his previous work provided support for the
specification presented. He then argued that his model paid more serious attention to
the link between inflation expectations and monetary policies than trend inflation models. Finally, he mentioned filtering problem as one of the sources of the persistence andalso stressed the importance of examining individuals’ expectations formation in orderto gain a better understanding of the sources of inflation inertia.
From the floor, Gertler commented that the use of survey-based expectations in................................
6. For details, see Fuhrer (2017).

4 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2017

Monetary Policy: Lessons Learned and Challenges Ahead

macroeconomic modeling was a step in the right direction. He then suggested thatthe next step should be to explore the mechanism of generating high serial correlation in forecast errors of survey-based expectations. In this context, John McDermott(Reserve Bank of New Zealand) asked how survey-based expectations responded topolicy announcements or changes. In reply, Fuhrer expressed his concern about theLucas critique, that is, responses in survey-based expectations could vary with changes
in policy regimes. James Bullard (Federal Reserve Bank of St. Louis) emphasized
the importance of investigating the eﬀects of fiscal policy on inflation dynamics using survey-based expectations. Hamada argued that international diﬀerences in the
structure of the labor market should be taken into account in analyzing diﬀerences in
inflation dynamics. Fuhrer replied that the high persistence in Japanese expectations
might be rooted in the inflation history.
B. Monetary Policy According to Heterogeneous Agent New Keynesian (HANK)
Models7
Moll compared the eﬀects of monetary policy in a heterogeneous agent new Keynesian(HANK) model and a representative agent new Keynesian (RANK) model. He started
by noting two notable diﬀerences regarding the transmission mechanism of monetary
policy in the two models: (i) in the HANK model, the direct eﬀect of an interest ratecut (the intertemporal substitution eﬀect) was weaker than in the RANK model, while
the indirect eﬀect (the general equilibrium eﬀect) was stronger; (ii) failure of Ricardianequivalence implied that, in HANK models, the fiscal reaction to monetary policy wasa key determinant of the macroeconomic fluctuation. Moreover, in the context of the“forward guidance puzzle,” he pointed out that the HANK model might be able toresolve the puzzle, since in the model the aggregate impact of a monetary policy shock
became smaller as persistence of the shock became smaller. He concluded that the
implication for central banks was that they should recognize the importance of theindirect eﬀect through general equilibrium outcomes such as the increase in income,
employment, and investment.
As the discussant, Boris Cournède (Organisation for Economic Co-operation andDevelopment) praised the paper for its methodological advances and rich policy implications, and suggested the following two directions for future research. First, hesuggested assessing the eﬀect of monetary policy on inequality with the use of thissophisticated general equilibrium model. He argued that this extension could help tocheck the robustness of the results obtained in previous studies using static partial equilibrium models. Second, given cross-country diﬀerences in the degree of inequality inearning and wealth, he highlighted the need for comparative studies across countries.
From the floor, Goodfriend posed the question whether it would be possible totake the natural rate of interest into account to explore the consequences of the decline
in the natural rate of interest over time. Moll replied that while he had not worked inthat direction yet, he had just developed tools that would make it possible to conduct
such an analysis in future research. R. Anton Braun (Federal Reserve Bank of Atlanta) asked whether optimal monetary policy in the HANK model would be diﬀerent................................
7. For details, see Kaplan, Moll, and Violante (2017).

5

from that in the RANK model. Moll acknowledged the importance of extending the
research agenda to examining optimal policy, but pointed out the diﬃculties involvedin computing social welfare for all the heterogeneous agents. Jan Marc Berk (DeNederlandsche Bank) asked to what extent the changes in wealth or income inequality
could explain the puzzlingly low inflation around the world. Moll replied that although
it was diﬃcult to give a clear answer, the distribution of wealth and income would be
relevant for the inflation rate.
C. Some Evidence on Secular Drivers of U.S. Safe Real Interest Rates8
West presented empirical results on the long-run correlations between real interest rates
and 21 variables in the U.S. He explained that the list of variables was motivated by theinter-temporal investment-saving (IS) equation, the aggregate saving and investment
relationship, and variables used in previous empirical studies. Employing an annual
dataset from 1890 to 2015 and various methods to measure long-run correlations suchas the low-pass filter technique, he showed that real interest rates were negatively correlated with the population share of 40 to 64 year olds, which implied that middle-aged
workers drove down real interest rates through the accumulation of savings.9 He addedthat although the first order condition for purchases of nominal one period bonds suggested that there should be a positive correlation between productivity and real interest
rates, no such correlation was found. Finally, he made 21 diﬀerent forecasts of U.S.
real interest rates in 2025 by regressing interest rates on each variable and reported thatthe median of those forecasts was 0.55 percent.
As the discussant, Piti Disyatat (Bank of Thailand), based on his own research,pointed out that in a dataset covering an extremely long period of time relationships
among variables may not be stable over time. He also highlighted that real rates are
actually determined in financial markets as a result of the interaction among central
bank policies, market expectations, risk perceptions, and preferences, rather than IS
equations. Kurt Lunsford (Federal Reserve Bank of Cleveland), the coauthor of thepaper, replied that avoiding subsample instability by dividing data into shorter periods
and extracting long-run correlations represented a diﬃcult tradeoﬀ.
From the floor, Gertler asked whether the same results would be obtained for countries other than the U.S. Referring to Disyatat’s research, West replied that demography
likely had a lot to do with the dynamics of real interest rates across countries, although
he had not examined this so far. Braun agreed with Disyatat’s final comment on the importance of real rates in financial markets, citing Hall’s (2013) financial wedge, which
is defined as the gap between the safe short real interest rate and the rate of return tocapital. Goodfriend suggested that the government debt recently piled up in advanced
countries through fiscal stimulus measures may have led to a change in households’
saving behavior in anticipation of possible tax hikes, which may have aﬀected the relationship between the real interest rate and demographic variables.

................................
8. For details, see Lunsford and West (2017).
9. The low-pass filter is a filter that retains only long cycle (i.e., low-frequency) components of the data.

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Monetary Policy: Lessons Learned and Challenges Ahead

D. Market Concentration and Sectoral Inflation under Imperfect Common
Knowledge10
Kato discussed the determinants of sectoral inflation persistence both in the U.S. andin Japan. He first showed the empirical fact that sectoral inflation persistence was(i) starkly dispersed and (ii) negatively correlated with market concentration in eachsector. Then, to explain the empirical observations, he proposed a dynamic stochastic model in which each monopolistic competitive firm sets its price while receiving
private signals about cost shocks. He highlighted the key feature of the model thata decrease in market concentration raised strategic complementarity among firms inthe same sector. He pointed out that under imperfect common knowledge of the costshocks, prices in a less concentrated sector depended more on firms’ higher-order expectations with regard to the shocks. He concluded that the prices in such sectors
responded only gradually to cost shocks, yielding high inflation persistence.
As the discussant, McDermott raised a number of econometric issues. He stressed
the importance of controlling for sectoral diﬀerences in characteristics and also expressed some concern about the low R-squared. More importantly, he expressed doubts
about the negative correlation between market concentration and inflation persistence,as it looked inconsistent with earlier studies including one using data for New Zealand.
He argued that some empirical studies indicated that prices tended to be stickier inmore concentrated sectors, suggesting that market concentration might be positively
correlated with inflation persistence. Kato emphasized the robustness of the empiricalfindings, referring to the fact that the size of the sample they used was larger than thatof similar studies. He also acknowledged that some unobservable variables might be
the sources of the low R-squared values. He added that empirical studies had found thatstickier prices entailed lower inflation persistence, so that his findings were consistent
with the existing evidence. He wrapped up by highlighting the importance of carefully distinguishing, from a theoretical as well as an empirical perspective, between
the frequency of price changes and inflation persistence.
From the floor, Gertler noted that he agreed that (i) price stickiness could not explain inflation persistence and (ii) theoretically higher-order expectations could play
an important role in generating inflation persistence. Fuhrer suggested extending themodel to investigate the eﬀects of other shocks such as mark-up shocks on sectoral
inflation persistence. Yukinobu Kitamura (Hitotsubashi University) oﬀered the viewthat not only concentration on the seller side but also on the buyer side had an influence on sectoral inflation persistence. Yuzo Honda (Kansai University) expressed hisconcern that several outliers might generate biases in the regression.

VI. The Policy Panel Discussion
In the policy panel discussion moderated by Goodfriend, Evans, Nakaso, and Smets
stated their recent experience with unconventional monetary policies and discussed
lessons learned and challenges ahead.
................................
10. For details, see Kato and Okuda (2017).

7

A. Remarks by Panelists
Nakaso discussed the three lessons learned from the BOJ’s monetary policy since2013, starting from “Quantitative and Qualitative Monetary Easing (QQE)” to the mostrecent “QQE with YCC.” First, he emphasized the importance of understanding how
the public formed inflation expectations. He showed that, compared to other countries,
in Japan realized inflation had a much larger impact on the formation of short-term
as well as long-term inflation expectations. Second, he mentioned the adverse side
eﬀects of the excessive decline and flattening of the yield curve induced by the combination of the negative interest rate policy (NIRP) and large-scale JGB purchases. He
added that such excessive flattening of the yield curve posed the risk of impeding thefunctioning of financial intermediation. Third, he noted that the experience of daily
market operations before QQE with YCC showed that the entire yield curve could becontrolled by exploiting a NIRP and large-scale JGB purchases. He then stated thatthe new monetary policy framework, QQE with YCC, was introduced based on thoselessons learned. Finally, he closed his remarks by pointing out three challenges ahead,
namely, the need to deepen our understanding of (i) how to raise inflation expectations
that fell once to an undesirably low level; (ii) optimal levels and shapes of the yield
curve; and (iii) the influence of yield curve control on market functioning.
Evans discussed three lessons from the U.S. experience with the Global Financial
Crisis and Great Recession. First, he noted that outcome-based policies are even morecritically important than usual during crises and are indispensable in the face of the zero
lower bound (ZLB). He argued that both stating goals clearly and taking actions that
display a “do whatever it takes” mentality are crucial for credibility and the eventual
achievement of policy goals. Second, he argued that a symmetric inflation target isa challenging objective. He reasoned that after correcting for the upward inflation
bias of the seventies, conservative central bankers may now find it diﬃcult to tolerate
above-target inflation even for limited and controlled periods of time. Accordingly,
they might lean towards overly restrictive financial conditions and deliver lower-thanoptimal inflation. In such cases, the inflation goal would become a ceiling instead ofa symmetric target. Third, he argued that, with lower equilibrium policy rates, therisk of facing the ZLB will be elevated for quite some time and, consequently, risk
management will be a key element for policy decision-making in the foreseeable future.
Smets discussed the lessons learned from the implementation of multi-dimensionalmonetary policy measures by the ECB in the last three years. He mentioned that themeasures were designed to deal with the impaired transmission mechanism of traditional monetary policy, in addition to the ZLB on policy rates. Providing a broad
overview of the outcomes of the overall easing policy package, he argued that thevarious policy measures reinforced each other: the NIRP strengthened the portfoliorebalancing channel of the asset purchase program (APP) without producing serious
damage to bank profitability; the APP strengthened the forward guidance through its
signaling eﬀects; and the targeted long-term refinancing operations (TLTRO) strengthened both the interest rate policy and the APP by mitigating the impairment of the banklending channel.

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Monetary Policy: Lessons Learned and Challenges Ahead

B. General Discussion
Goodfriend began by posing several questions to the three panelists to consider whatmight happen in the future under the unconventional monetary policies implemented
after the Global Financial Crisis.
First, Goodfriend asked Nakaso (1) whether downward pressure on bond rates
through central banks’ asset purchases had been oﬀset by upward pressure through theincreasing issuance of corporate bonds (CBs), (2) which factor played a larger role inthe decline of JGB yields—term premiums or expected future short-term rates, and (3)why the NIRP depressed bank profits more in Japan than in the euro area. Regarding
question (1), Nakaso answered that overall demand and supply conditions in the bondmarket in Japan remained quite tight and that little change had been observed in the
spread between yields on CBs and JGBs. In reply to question (2), he mentioned thatwhile term premiums contributed relatively more to lowering long-term interest rates,
the NIRP played the role of a game changer, referring to the analyses in the BOJ’s“Comprehensive Assessment” published in September 2016 showing that the eﬀect ofan additional unit of JGB purchases on the yield curve became much stronger after
the introduction of the NIRP. Finally, with respect to question (3), he pointed out that
the NIRP squeezed banks’ lending margins more severely in Japan mainly due to thestructure of the banking sector: given that retail depositors made up a large part of theircustomer base, commercial banks were very reluctant to introduce negative deposit
rates.
Next, Goodfriend asked Evans (1) under what circumstances the U.S. would consider a NIRP, and (2) what caused the “Taper Tantrum” in May 2013. With respect toquestion (1), Evans replied that the BOJ’s case provided a good example of the circumstances under which the U.S. would consider a NIRP, but the U.S. economy had notreached this situation. Regarding question (2), he pointed to a change in marginal investors’ behavior: before May 2013, they had expected the Federal Reserve to change
its asset purchase program only in the very distant future and therefore had taken on
excessive risk; however, in May 2013, they realized the potential risks involved in thepositions they had taken and incorporated these risks into the pricing of bonds. This
repositioning, in turn, led to the sharp increase in long-term interest rates.
Finally, Goodfriend asked Smets (1) why the ECB had introduced the NIRP in
2014, and (2) why in the euro area the NIRP had not been detrimental to banks’ profits.
Regarding question (1), Smets mentioned two aspects that formed the background to
the NIRP introduction: (i) several other central banks had already introduced a NIRP;
and (ii) the medium-term outlook for inflation had worsened. In reply to question (2),he pointed out that the reason was that the degree of pass-through from the policy rate
to deposit rates was quite large in Europe.
After the replies from the panelists, the discussion was opened to conference participants. Regarding Evans’ presentation, Kawai and Emrah Şener (Central Bank of
the Republic of Turkey) asked about the lessons from the Taper Tantrum with regard
to spillover eﬀects of U.S. monetary policy. Evans replied that policy coordination
among central banks was a challenge, since all policy actions of a particular central
bank were determined by that central bank’s specific mandate and therefore might potentially be out of step with economic conditions in some other countries. With respect

9

to Evans’ reply, Nakaso added that an example of coordination among central banks
was the exchange of views on dollar liquidity positions of firms and banks in emerging
market economies.
Regarding Smets’ presentation, Cournède asked about the reason for the diﬀerence in the eﬀect of the NIRP on bank profitability across individual banks, and theimplications for financial stability. In a similar vein, John Simon (Reserve Bank ofAustralia) posed a question for all panelists, asking to what extent central banks shouldcare about the risk that their accommodative policies might be leading to inappropriate risk-taking that might raise concerns about financial stability. Smets replied to
Cournède’s question that the heterogeneity of banks in the euro area meant that the interbank market functioned suﬃciently well even at negative interest rates, and that evenbanks that had a liquidity shortage could obtain funding at very low interest rates frominvestment banks with excess liquidity. In reply to Simon’s question, Nakaso answeredthat the BOJ examined the soundness of the financial system in the Financial System
Report published semiannually, which confirmed that there were no signs of either anoverheating of economic and financial activity or a deterioration of financial intermediation. Evans also remarked that to manage financial stability risk, the monetary policy
authority needed to collaborate with fiscal and financial regulatory authorities.
Several questions regarding various topics were raised from the floor. Paolo
Pesenti (Federal Reserve Bank of New York) asked whether the unconventionalmonetary policy tools introduced by central banks still had a role to play once
economies had returned to normal. Smets replied that to what extent central banks
would continue to use such tools depended on the degree of frictions or impairments
in financial markets. Oscar Arce (Banco de España) posed the question whether thecurrent situation in Japan’s labor market was relevant for the formation of inflation
expectations. Nakaso replied that while wage setting was quite backward-looking andwas closely connected with realized inflation in the previous years, wage increases
were observed despite almost zero inflation, probably reflecting the fact that the labormarket was extremely tight. Alexander Polonskiy (Bank of Russia) asked about
the eﬀect of digital currencies on the inflation processes. Evans replied that digitalcurrencies were just another kind of asset with a lot of price volatility and their eﬀect
on the economy was still uncertain.

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Monetary Policy: Lessons Learned and Challenges Ahead

References
Bernanke, Ben S., “The Mayekawa Lecture: Some Reflections on Japanese Monetary Policy,” Monetary and Economic Studies, 35, Institute for Monetary and Economic Studies, Bank of Japan,
2017, pp. 23–38 (this issue).
Fuhrer, Jeﬀrey C., “The Role of Expectations in Inflation Dynamics,” International Journal of Central
Banking, 8(S1), 2012, pp. 137–165.
, “Japanese and U.S. Inflation Dynamics in the 21st Century,” IMES Discussion Paper No.
2017-E-5, Institute for Monetary and Economic Studies, Bank of Japan, 2017.
Gertler, Mark, “Rethinking the Power of Forward Guidance: Lessons from Japan,” Monetary andEconomic Studies, 35, Institute for Monetary and Economic Studies, Bank of Japan, 2017,
pp. 39–58 (this issue).
Hall, Robert E., “The Routes Into and Out of the Zero Lower Bound,” Economic Policy Symposium
Proceedings of Global Dimensions of Unconventional Monetary Policy, Federal Reserve Bankof Kansas City, 2013, pp. 1–35.
Kaplan, Greg, Benjamin Moll, and Giovanni L. Violante, “Monetary Policy According to HANK,”IMES Discussion Paper No. 2017-E-4, Institute for Monetary and Economic Studies, Bank ofJapan, 2017.
Kato, Ryo, and Tatsushi Okuda, “Market Concentration and Sectoral Inflation under Imperfect Common Knowledge,” paper presented at the 2017 BOJ-IMES Conference on “Monetary Policy:
Lessons Learned and Challenges Ahead” held by the Institute for Monetary and Economic
Studies, Bank of Japan, 2017.
Kuroda, Haruhiko, “Re-anchoring Inflation Expectations via ‘Quantitative and Qualitative Monetary
Easing with a Negative Interest Rate’,” remarks at the Economic Policy Symposium held by
the Federal Reserve Bank of Kansas City on August 27, Bank of Japan, 2016 (available at
http://www.boj.or.jp/en/announcements/press/koen_2016/ko160828a.htm/, accessed July 14,2017).
, “Opening Remarks,” Monetary and Economic Studies, 35, Institute for Monetary and Economic Studies, Bank of Japan, 2017, pp. 17–22 (this issue).
Lunsford, Kurt G., and Kenneth D. West, “Some Evidence on Secular Drivers of U.S. Safe Real
Rates,” paper presented at the 2017 BOJ-IMES Conference on “Monetary Policy: Lessons
Learned and Challenges Ahead” held by the Institute for Monetary and Economic Studies,Bank of Japan, 2017.

11

APPENDIX 1: PROGRAM
Wednesday, May 24, 2017
Morning
Opening Remarks
Chairperson:
Speaker:
Mayekawa Lecture
Chairperson:
Lecturer:

Shigenori Shiratsuka, Bank of Japan
Haruhiko Kuroda, Bank of Japan

Kazuo Ueda, Kyoritsu Women’s University and Universityof Tokyo
Ben S. Bernanke, The Brookings Institution

Session 1: Japanese and U.S. Inflation Dynamics in the 21st Century
Chairperson:
Anne Le Lorier, Banque de France
Paper Presenter:Jeﬀrey C. Fuhrer, Federal Reserve Bank of Boston
Discussant:Mototsugu Shintani, University of Tokyo
Afternoon
Keynote Speech
Chairperson:
Speaker:

Shigenori Shiratsuka, Bank of JapanMark Gertler, New York University

Session 2: Monetary Policy According to Heterogeneous Agent New Keynesian (HANK) Models
Chairperson:
Takatoshi Ito, Columbia University and National Graduate
Institute for Policy Studies
Paper Presenter:
Benjamin Moll, Princeton University
Discussant:Boris Cournède, Organisation for Economic Co-operation
and Development
Session 3: Some Evidence on Secular Drivers of U.S. Safe Real Interest Rates
Chairperson:
Emrah Şener, Central Bank of the Republic of Turkey
Paper Presenter:
Kenneth D. West, University of Wisconsin-Madison
Discussant:Piti Disyatat, Bank of Thailand

12 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2017

Monetary Policy: Lessons Learned and Challenges Ahead

Thursday, May 25, 2017
Morning
Session 4: Market Concentration and Sectoral Inflation under Imperfect
Common Knowledge
Chairperson:
James Bullard, Federal Reserve Bank of St. Louis
Paper Presenter:
Ryo Kato, Bank of Japan
Discussant:John McDermott, Reserve Bank of New Zealand
Policy Panel Discussion
Moderator:
Marvin Goodfriend, Carnegie Mellon University
Panelists:
Charles L. Evans, Federal Reserve Bank of Chicago
Frank Smets, European Central Bank
Hiroshi Nakaso, Bank of Japan

13

APPENDIX 2: LIST OF PARTICIPANTS
Fahad Ibrahim Alshathri
Masayoshi Amamiya
Kosuke Aoki
Oscar Arce
Jan Marc Berk
Ben S. Bernanke
R. Anton BraunJames Bullard
Lillian Cheung
Angelo Alfonso Alberto Cicogna
Boris CournèdeFrancisco Jr. Garcia Dakila
Piti Disyatat
Taeyoung Doh
Michael Dotsey
Charles L. Evans
Jeﬀrey C. Fuhrer
Hiroshi Fujiki
Yukitoshi Funo
Mark Gertler
Marvin Goodfriend
Koichi Hamada
Yutaka Harada
Hisashi Harui
Hideo Hayakawa
Yuzo Honda
Nobuo Inaba
Takatoshi Ito
Kazumasa Iwata
Kikuo Iwata
Alexander Kadow
Koichiro Kamada
Takashi Kano
Ryo Kato
Takeshi Kato
Masahiro Kawai
Mohd Nozlan Khadri

Saudi Arabian Monetary Authority
Bank of Japan
University of Tokyo
Banco de España
De Nederlandsche Bank
The Brookings Institution
Federal Reserve Bank of Atlanta
Federal Reserve Bank of St. Louis
Hong Kong Monetary Authority
Banca d’Italia
Organisation for Economic Co-operation andDevelopment
Bangko Sentral ng Pilipinas
Bank of Thailand
Federal Reserve Bank of Kansas City
Federal Reserve Bank of Philadelphia
Federal Reserve Bank of Chicago
Federal Reserve Bank of Boston
Chuo University
Bank of JapanNew York University
Carnegie Mellon University
Yale University
Bank of Japan
Japan Society of Monetary Economics
Fujitsu Research InstituteKansai University
Ricoh Company, Ltd.
Columbia University and National Graduate
Institute for Policy Studies
Japan Center for Economic Research
Bank of Japan
Deutsche Bundesbank
Bank of Japan
Hitotsubashi University
Bank of Japan
Bank of Japan
University of Tokyo
Bank Negara Malaysia

14 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2017

Monetary Policy: Lessons Learned and Challenges Ahead

Yukinobu Kitamura
Takahide Kiuchi
Haruhiko Kuroda
Tetsuo Kurosaki
Takushi Kurozumi
Shigehiro Kuwabara
San Ling Lam
Anne Le Lorier
Li Siduo
Kurt Lunsford
Eiji Maeda
Takako Masai
John McDermott
Atsushi Miyanoya
Ryuzo Miyao
Madhusudan Mohanty
Benjamin Moll
Akihiro Nakano
Hiroshi Nakaso
Ko Nakayama
Marianne Nessén
Mitsuru Nomura
Kazuhiko Ohashi
Yutaka Okada
Yoji Onozawa
Paolo Pesenti
Matthew Poggi
Alexander Polonskiy
Takehiro Sato
Yasuyuki Sawada
Toshitaka Sekine
Emrah Şener
Seiichi Shimizu
Mototsugu Shintani
Shigenori Shiratsuka
John Simon
Frank Smets
Wook Sohn
Kazuya Suzuki
Wataru Takahashi

Hitotsubashi University
Bank of Japan
Bank of Japan
Bank of Japan
Bank of Japan
Bank of Japan
Monetary Authority of Singapore
Banque de France
People’s Bank of China
Federal Reserve Bank of Cleveland
Bank of Japan
Bank of Japan
Reserve Bank of New Zealand
Bank of Japan
University of Tokyo
Bank for International Settlements
Princeton University
Bank of Japan
Bank of Japan
Bank of Japan
Sveriges Riksbank
Bank of Japan
Hitotsubashi University
Bank of Japan
Bank of Japan
Federal Reserve Bank of New YorkU.S. Department of Treasury
Bank of Russia
Bank of Japan
Asian Development Bank
Bank of Japan
Central Bank of the Republic of Turkey
Bank of Japan
University of Tokyo
Bank of Japan
Reserve Bank of Australia
European Central Bank
The Bank of Korea
Bank of Japan
Osaka University of Economics

15

Seiichi Tsurumi
Kazuo Ueda
Kozo Ueda
Yoichi Ueno
Franz Waldenberger
Dody Budi Waluyo
Kenichiro Watanabe
Toshiaki Watanabe
Kenneth D. WestMark Wynne
Hiromi Yamaoka
Nobuyasu Yoshioka
Attilio Zanetti

Bank of Japan
Kyoritsu Women’s University and Universityof Tokyo
Waseda University
Bank of Japan
German Institute for Japanese Studies
Bank Indonesia
Hitotsubashi University
Hitotsubashi University
University of Wisconsin-Madison
Federal Reserve Bank of Dallas
Bank of Japan
Bank of Japan
Swiss National Bank

16 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2017