Thanks for your reply. I think I'm getting it. I've been reading all the posts on this board starting from the beginning. I'm at 1250 Quite useful, interesting, sometimes prescient..
In my efforts to get more background, I came across a lecture by Gordon Thiessen, previous Governor of the Bank of Canada, which he gave just before he retired after 37 years as a central banker. It's a short history of BoC policy difficulties and how they've coped.
It would appear the BoC has the same problems as US Fed of trying to do too much using the wrong instrument. Although it's my suspicion the BoC has been trying, a good bit of the time lately to follow, rather than lead the market with its interest setting, I can't prove it, and I'm sure they don't do it all the time. And I have no idea how they'd manage it given that their visibility might be messed up a good bit of the time, just like everyone else's.
Some of the lecture deals with the difficulties BoC had dealing with inflation and is relevant to your comment in post 3283
You don't undo a
superficial evil (slight deflation) with another one (inflation) which isn't superficial. The BOJ
can use various techniques to change the form of money without changing its quantity in
order to get a change in the mix of public preferences in spending. An increase in the
quantity ceteris paribus would be inflationary. Once an economy inflates, it is very difficult to
stop. We certainly haven't and right now as I write, we are inflating and it's getting serious.
The BoC Governor of the late 50s, James Coyne, resigned in dispute with the government over the issue, framed at the time in terms of trading more inflation for more employment. Coyne believed low or no inflation would gradually lead to higher employment.
Thiessen's sympathies seem to lie entirely with Coyne.
For an outsider like me, very interesting essay.
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