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Raising the Inflation Target: Lessons from Japan (Federal Reserve, 10 min read) Fed takes a useful look back at the BoJ’s 2013 decision to raise its inflation target from 1% to 2%. They find the new target combined with the introduction of QQE boosted growth but only partially on raising inflation (CPI remains below the pre 2013 target). Achieving the old, before adopting a new target is one lesson for other central banks considering such a move. ECB and Fed take note.
Why Has Wage Growth Been Subdued in the Advanced Foreign Economies? (Federal Reserve, 6 min read) The authors use several models to show that slower productivity growth and lower natural rates of unemployment explain much of the apparent breakdown in the relationship between unemployment and wages. Once this is taken into account the wage Philips curve is indeed alive and well.
Debt Has Not Been Caused by Low Interest Rates, but Higher Rates Would Topple the Whole World Economy (Naked Capitalism, 2 min read) Richard Murphy highlights the latest World Bank concerns on rising debt. Normalising monetary policy is not feasible in his opinion as raising interest rates would “fuel disaster and the most massive collapse”.