Japan Should Link Fiscal Policy to Inflation

Japan should delay raising the sales tax and commit to an expansionary fiscal policy until inflation meets the Bank of Japan’s 2 percent inflation target, Nobel laureate Christopher Sims said on Monday.

Linking fiscal policy to inflation, combined with continued BOJ debt purchases to keep yields low, would help overcome the limits posed by the zero lower bound on nominal interest rates, said Sims, a Princeton University economist.

Japan’s government should also delay returning to a primary budget surplus until after the inflation target is met, said Sims, who is in contact with Koichi Hamada, one of Prime Minister Shinzo Abe’s influential aides on economic policy.

Reuters

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