Hyungsok Ahn - 20160711

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Remarks by Governor Ben S. Bernanke -2013

Remarks by Governor Ben S. Bernanke Before the Japan Society of Monetary Economics, Tokyo, Japan May 31, 2003Some Thoughts on Monetary Policy in Japan

I am delighted to address this meeting of the Japan Society of Monetary Economics. I would particularly like to thank Professor Shimizu both for inviting me and for helping to arrange a series of meetings with officials at the Bank of Japan, the Ministry of Finance, and the Financial Services Agency. Those meetings have given me a first-hand look at the difficult challenges that the current economic situation poses for Japan's leaders and for the Japanese people. The economic situation here is indeed enormously complex. It involves not only structural, monetary, and fiscal problems but also underlying political and social forces, which have at times limited the flexibility of policy. The sometimes frustratingly slow pace of change in Japan is all the more reason, however, for this nation's economists to speak out and present clear, persuasive arguments that will help guide the policy debate and urge leaders to effective action. At stake is not only the economic health of your country but also, to a significant degree, the prosperity of the rest of the world. From my side of the ocean, it seems that many people are looking to the United States to take the responsibility for leading the world into economic recovery. Clearly, however, faster growth in Japan and other major industrial countries would support a stronger, more balanced, and more durable recovery than one driven by U.S. growth alone. Although changes in macroeconomic policy in Japan during the past decade have generally been slow and deliberate, there has also been some willingness to experiment, not least by the Bank of Japan (BOJ). For this reason, the recent appointment of a new leadership team at the BOJ has stimulated considerable interest and expectation around the world. Although Governor Fukui and his colleagues have so far not made radical breaks with previous BOJ policies, there is reason to hope that they will be open to fresh ideas and approaches. In that spirit, my remarks today will be focused on opportunities for monetary policy innovation in Japan, including specifically the possibility of more-active monetary-fiscal cooperation to end deflation. In focusing primarily on macroeconomic policies and the deflation problem, however, I do not wish to imply that more microeconomic measures--such as bank restructuring and recapitalization, development of more liquid capital markets, revitalization of the distressed corporate sector, and broader structural reform--are not essential and urgent. < microeconomic measures> - bank restructuring - recapitalization - development of more liquid capital markets - revitalization of distressed corporate sector - broader structural reform ===> Not essential and urgent! Indeed, all these elements are crucial if Japan's economy is to return to a more satisfactory rate of growth. However, I do think that ending deflation and carrying out banking, financial, corporate, and structural reforms can and should be pursued on parallel tracks, with progress being made wherever possible.  Indeed, a definitive end to the deflation in consumer prices--by restoring confidence and stimulating spending--would do much to help moderate the unemployment and financial distress that might otherwise arise as the results of aggressive programs of reform and restructuring. I preface the body of my remarks with two important caveats. First, the opinions I give today are strictly my own and should not be attributed to my colleagues on the Board of Governors of the Federal Reserve or on the Federal Open Market Committee; nor do they reflect any official position of the United States government. Second, the remarks that follow were prepared before my visit to Japan and therefore do not reflect the discussions that I held this week with Japanese officials. Obviously, then, no inference should be made about those meetings from the comments to follow.1 Today I would like to consider three related issues that bear on contemporary monetary policy in Japan. First, I will discuss the option of asking the Bank of Japan to announce a quantitative objective for prices, as well as how such an objective might best be structured. Rather than proposing the more familiar inflation target, I will suggest that the BOJ consider adopting a price-level target, which would imply a period of reflation to offset the effects on prices of the recent period of deflation. 인플레이션 타겟을 제안하기 보단 BOJ가  price-level을 타게팅 하기를 제안한다. price-level targeting ==> 최근 벌어지고 있는 가격 deflation 에 대한 효과를 상쇄 시키는 통화팽창 시기(period of reflation)를 의미함 Inflation targeting을 하기에는 너무 안좋은 시기. 좀 더 강한 팽창 정책. 과거 inflation targeting 과 price targeting 이 함께 가던 시기로 회복 시킬 정도로 확장 정책  Second, I would like to consider an important institutional issue, which is the relationship between the condition of the Bank of Japan's balance sheet and its ability to undertake more aggressive monetary policies. Although, in principle, balance-sheet considerations should not seriously constrain central bank policies, in practice they do. However, as I will discuss, relatively simple measures that would eliminate this constraint are available.  Finally, and most important, I will consider one possible strategy for ending the deflation in Japan: explicit, though temporary, cooperation between the monetary and the fiscal authorities. 1. Inflation-rate targeting 말고 Price-rate targeting 을 하고 2. Balance sheet 걱정하는데 고거에 대해 이야기 할 것 이고 3. Cooperation between the monetary and the fiscal authorities! What Objective for Japanese Monetary Policy? Before setting off on a trip, one should know one's destination. In that spirit, a discussion of Japanese monetary policy should begin with some discussion of the policy objective. I leave until later how the objective can be achieved. The Bank of Japan Law, passed in 1998, sets price stability as a primary objective for the central bank. As with our own Federal Reserve Act, price stability is not, however, precisely defined in the Law. Currently, the BOJ has promised that the zero-interest-rate policy will be maintained until deflation is brought to an end, a policy that might be deemed consistent with the price stability objective. Two objections to this conclusion might be raised, however.  First, the BOJ's statement seems to imply that the current level of policy stimulus might start to be withdrawn as soon as measured inflation returns to zero; in particular, no explicit(솔직한) commitment(약속) has been made to maintain inflation at zero, much less at some positive rate, in the longer run. But the presence of measurement bias in Japanese price indexes suggest that a measured inflation rate of at least one percent is likely required in order to achieve true price stability in the long run. Moreover, inflation above zero will be needed if real interest rates in Japan are to be negative for a period, as many observers think is necessary for full recovery. In short, it would be helpful if the zero-interest-rate policy were more explicit about what happens after the deflationary period ends. Second, over the past five years, since the onset of the current deflationary episode--and, incidentally, since the passage of the new Bank of Japan Law--the price level has trended down, registering a cumulative decline (depending on the price index) of between 4 and 9 percent. For example, over this period the GDP deflator has dropped nearly 9 percent, the private consumption deflator has fallen 5-1/2 percent, and wages and salaries are down 4-1/2 percent. One might argue that the legal objective of price stability should require not only a commitment to stabilize prices in the future but also a policy of actively reflating the economy, in order to restore the price level that prevailed prior to the prolonged period of deflation. As you may know, I have advocated explicit inflation targets, or at least a quantitative definition of price stability, for other leading central banks, including the Federal Reserve. A quantitative inflation target or range has been shown in many countries to be a valuable tool for communication. By clarifying the objectives of the central bank, an explicit inflation target can help to focus and anchor inflation expectations, reduce uncertainty in financial markets, and add structure to the policy framework. For Japan, given the recent history of costly deflation, however, an inflation target may not go far enough. A better strategy for Japanese monetary policy might be a publicly announced, gradually rising price-level target. What I have in mind is that the Bank of Japan would announce its intention to restore the price level (as measured by some standard index of prices, such as the consumer price index excluding fresh food) to the value it would have reached if, instead of the deflation of the past five years, a moderate inflation of, say, 1 percent per year had occurred. (I choose 1 percent to allow for the measurement bias issue noted above, and because a slightly positive average rate of inflation reduces the risk of future episodes of sustained deflation.) Note that the proposed price-level target is a moving target, equal in the year 2003 to a value approximately 5 percent above the actual price level in 1998 and rising 1 percent per year thereafter.2 Because deflation implies falling prices while the target price-level rises, the failure to end deflation in a given year has the effect of increasing what I have called the price-level gap (Bernanke, 2000). The price-level gap is the difference between the actual price level and the price level that would have obtained if deflation had been avoided and the price stability objective achieved in the first place. Def> Price level gap = actual price level - deflation 이 없었다면 도달해 있을 price level A successful effort to eliminate the price-level gap would proceed, roughly, in two stages. During the first stage, the inflation rate would exceed the long-term desired inflation rate, as the price-level gap was eliminated and the effects of previous deflation undone. Call this the reflationary phase of policy. Second, once the price-level target was reached, or nearly so, the objective for policy would become a conventional inflation target or a price-level target that increases over time at the average desired rate of inflation.3 Although restoration of the pre-deflation price level by means of a price-level target might be a reasonable interpretation of the BOJ's price stability objective, I would not want to push the purely legal argument too far. For example, based on a mandate for price stability, I would not ask either the BOJ or the Federal Reserve to restore the price level prevailing in their respective nations in 1950! Rather, I think the BOJ should consider a policy of reflation before re-stabilizing at a low inflation rate primarily because of the economic benefits of such a policy. One benefit of reflation would be to ease some of the intense pressure on debtors and on the financial system more generally. Since the early 1990s, borrowers in Japan have repeatedly found themselves squeezed by disinflation or deflation, which has required them to pay their debts in yen of greater value than they had expected. Borrower distress has affected the functioning of the whole economy, for example by weakening the banking system and depressing investment spending. Of course, declining asset values and the structural problems of Japanese firms have contributed greatly to debtors' problems as well, but reflation would, nevertheless, provide some relief. A period of reflation would also likely provide a boost to profits and help to break the deflationary psychology among the public, which would be positive factors for asset prices as well. Reflation--that is, a period of inflation above the long-run preferred rate in order to restore the earlier price level--proved highly beneficial following the deflations of the 1930s in both Japan and the United States. Finance Minister Korekiyo Takahashi brilliantly rescued Japan from the Great Depression through reflationary policies in the early 1930s, while President Franklin D. Roosevelt's reflationary monetary and banking policies did the same for the United States in 1933 and subsequent years. In both cases, the turnaround was amazingly rapid. In the United States, for example, prices fell at a 10.3 percent rate in 1932 but rose 0.8 percent in 1933 and more briskly thereafter. Moreover, during the year that followed Roosevelt's inauguration in March 1933, the U.S. stock market rallied by 77 percent. Eggertsson and Woodford (2003) have advanced a second argument for a price-level target for Japan in an important recent paper on monetary policy at the zero bound. These authors point out (as have many others) that, when nominal interest rates are at or near zero, the central bank can lower the real rate of interest only by creating expectations of inflation on the part of the public. Eggertsson and Woodford argue that a publicly announced price-level target of the type just described is more conducive to raising near-term inflation expectations than is an inflation target.4 One way to understand their argument is to imagine that the public expects the leaders of the central bank to take more aggressive actions, the further they are from their announced objective. Now suppose that, in an economy experiencing a stable deflation, the central bank leadership announces a fixed inflation target but then makes no progress toward that target during a given period. Then in the next period, the central bank is in the same position as previously, in terms of its distance from its objective; hence, by hypothesis, the central bank has no incentive to increase its effort to meet the announced target, and the public has no reason to expect it to do so. In this respect the inflation target is too "forgiving" an objective; failure is not penalized, nor is greater effort demanded. In contrast, under a price-level-targeting scheme, continuing deflation combined with an upward-sloping path for the price-level target causes the size of the price-level gap to increase over time. Thus, failure by the central bank to meet its target in a given period leads to expectations of (and public demands for) increased effort in subsequent periods--greater quantities of assets purchased on the open market, for example. So even if the central bank is reluctant to provide a time frame for meeting its objective, the structure of the price-level objective provides a means for the bank to commit to increasing its anti-deflationary efforts when its earlier efforts prove unsuccessful. As Eggertsson and Woodford show, the expectation that an increasing price level gap will give rise to intensified effort by the central bank should lead the public to believe that ultimately inflation will replace deflation, a belief that supports the central bank's own objectives by lowering the current real rate of interest. A concern that one might have about price-level targeting, as opposed to more conventional inflation targeting, is that it requires a short-term inflation rate that is higher than the long-term inflation objective. Is there not some danger of inflation overshooting, so that a deflation problem is replaced with an inflation problem? No doubt this concern has some basis, and ultimately one has to make a judgment. However, on the other side of the scale, I would put the following points: first, the benefits to the real economy of a more rapid restoration of the pre-deflation price level and second, the fact that the publicly announced price-level targets would help the Bank of Japan manage public expectations and to draw the distinction between a one-time price-level correction and the BOJ's longer-run inflation objective. If this distinction can be made, the effect of the reflation program on inflation expectations and long-term nominal interest rates should be smaller than if all reflation is interpreted as a permanent increase in inflation. A Barrier to More Aggressive Policies: The BOJ's Balance Sheet Discussing the optimal objectives for Japanese monetary policy is all very well, but what of the argument, advanced by some officials, that the Bank of Japan lacks the tools to achieve these objectives? Without denying the many difficulties inherent in making monetary policy in the current environment in Japan, I believe that not all the possible methods for easing monetary policy in Japan have been fully exploited. One possible approach to ending deflation in Japan would be greater cooperation, for a limited time, between the monetary and the fiscal authorities. Specifically, the Bank of Japan should consider increasing still further its purchases of government debt, preferably in explicit conjunction with a program of tax cuts or other fiscal stimulus. Before going into more detail about this possibility, however, I want to discuss a specific institutional factor that currently constrains--somewhat artificially, I would argue--the ability of the Bank of Japan to pursue more aggressive policies, including both so-called non-conventional and more-orthodox policies. This institutional constraint, often cited by BOJ officials, is the condition of the BOJ's balance sheet, and the fear, in particular, that a successful program of reflation might inflict capital losses on the BOJ and thereby weaken its institutional position. Like other central banks, the Bank of Japan has a balance sheet, with assets, liabilities, and capital. Also like other central banks, the BOJ purchases interest-bearing assets with money that it creates and thus typically earns significant profits, or seignorage. Some of these profits are used to cover the expenses of the BOJ itself, subject to review by the Ministry of Finance (MOF). The BOJ also has reserves for possible losses on securities and foreign exchange transactions and is permitted by the Article 53 of the Bank of Japan Law to retain 5 percent of the surplus from the settlement of profits and losses as a reserve fund. The portion of the surplus not retained by the Bank is paid to the national treasury. From the point of view of conventional private-sector accounting--which, as I will discuss, is not necessarily the correct standard in this case--the BOJ's balance sheet has become noticeably riskier in recent years. For example, the BOJ's most recent financial statement showed that of the 68 percent of its assets held in the form of government securities, about two-thirds are long-term Japanese government bonds (JGBs). This represents a very substantial increase over customary levels in the BOJ's holdings of long-term government debt. Because yields on government bonds are currently so low, these holdings expose the BOJ's balance sheet to considerable interest-rate risk (although any losses would be partly offset by unrealized capital gains on earlier acquisitions of bonds). Indeed, ironically, if the Bank of Japan were to succeed in replacing deflation with a low but positive rate of inflation, its reward would likely be substantial capital losses in the value of its government bond holdings arising from the resulting increase in long-term nominal interest rates. ------------------------ With such concerns in mind, BOJ officials have said that a strengthening of the Bank's capital base is needed to allow it to pursue more aggressive monetary policy easing. In fact, the BOJ recently requested that it be allowed to retain 15 percent (rather than 5 percent) of the surplus for the 2002 fiscal year that just ended to increase its capital, and the Ministry of Finance has indicated that it will approve the request. Even with this additional cushion, however, concerns on the part of the BOJ about its balance sheet are likely to remain. The public debate over the BOJ's capital should not distract us from the underlying economics of the situation. In particular, the private shareholders notwithstanding, the Bank of Japan is not a private commercial bank. It cannot go bankrupt in the sense that a private firm can, and the usual reasons that a commercial bank holds capital--to reduce incentives for excessive risk-taking, for example--do not directly apply to the BOJ.5 Indeed, putting aside psychological and symbolic reasons, important as these may be in some circumstances, there appear to be only two conceivable effects of the BOJ's balance sheet position on its ability to conduct normal operations. First, if the BOJ's income were too low to support its current expenditure budget, the Bank might be forced to ask the MOF for supplemental funds, which the BOJ might fear would put its independence at risk. This consideration by itself should not necessarily make the BOJ less willing to undertake more aggressive monetary policies, however, because purchasing additional assets with non-zero yields, even if these assets are risky or illiquid, normally increases the Bank's current income. Second, an imaginable, though quite unlikely, possibility is that the Bank could suffer sufficient capital losses on its assets to make it unable to conduct open-market sales of securities on a scale large enough to meet its monetary policy objectives. In short, one could make an economic case that the balance sheet of the central bank should be of marginal relevance at best to the determination of monetary policy. Rather than engage in what would probably be a heated and unproductive debate over the issue, however, I would propose instead that the Japanese government just fix the problem, thereby eliminating this concern from the BOJ's list of worries. There are many essentially costless ways to fix it. I am intrigued by a simple proposal that I understand has been suggested by the Japanese Business Federation, the Nippon Keidanren. Under this proposal the Ministry of Finance would convert the fixed interest rates of the Japanese government bonds held by the Bank of Japan into floating interest rates. This "bond conversion"--actually, a fixed-floating interest rate swap--would protect the capital position of the Bank of Japan from increases in long-term interest rates and remove much of the balance sheet risk associated with open-market operations in government securities. Moreover, the budgetary implications of this proposal would be essentially zero, since any increase in interest payments to the BOJ by the MOF arising from the bond conversion would be offset by an almost equal increase in the BOJ's payouts to the national treasury.6 The budgetary neutrality of the proposal is of course a consequence of the fact that, as a matter of arithmetic, any capital gains or losses in the value of government securities held by the BOJ are precisely offset by opposite changes in the net worth of the issuer of those securities, the government treasury. Although the MOF could insulate, without budgetary cost, the BOJ's balance sheet from interest-rate risk on its holdings of government bonds, a similar program offered by the MOF to private-sector holders of bonds, such as commercial banks, would not be costless from the MOF's point of view, if inflation and interest rates were subsequently to rise.7 However, if the MOF entered into the proposed swap agreement with the BOJ, new purchases of government bonds from the private sector by the Bank of Japan would be costless to the national treasury. Thus, conditional on the swap arrangement being in force, open-market purchases of government bonds by the BOJ would combine an expansionary monetary policy with a reduction of interest-rate risk in the banking system at no budgetary cost.8 The simple step of immunizing the BOJ's balance sheet thus opens a number of interesting policy options. The bond conversion (or interest-rate swap) just described is all that would be needed to protect the BOJ's balance sheet against any side effects from operations in government bonds. Incidentally, the approach could be extended to insulate the BOJ's balance sheet against potentially adverse effects of other types of asset purchases that the government might want to encourage. For example, to facilitate expanded purchases of asset-backed commercial paper, the government might agree, on request of the BOJ, to exchange government debt of the same maturity for the commercial paper. The net effect would be that the fiscal authority would assume the credit risk flowing from the nonstandard monetary policy action, as seems appropriate. What should the Bank of Japan give up in exchange for the Ministry of Finance's removing a significant amount of risk from the BOJ's balance sheet? One option would be for the Bank to use its increased ability to bear risk to undertake new policy actions that would entail accepting other types of risk onto its balance sheet. Today I will argue for a different approach and suggest that the Bank of Japan cooperate temporarily with the government to create an environment of combined monetary and fiscal ease to end deflation and help restart economic growth in Japan. To do this, the BOJ might have to scrap rules that it has set for itself--for example, its informal rule that the quantity of long-term government bonds on its balance sheet must be kept below the outstanding balance of banknotes issued. Monetary and Fiscal Cooperation There is no unique solution to the problem of continuing declines in Japanese prices; a variety of policies are worth trying, alone or in combination. However, one fairly direct and practical approach is explicit (though temporary) cooperation between the monetary and the fiscal authorities. Let me try to explain why I think this direction is promising and may succeed where monetary and fiscal policies applied separately have not. Demand on the part of both consumers and potential purchasers of new capital equipment in Japan remains quite depressed, and resources are not being fully utilized. Normally, the central bank would respond to such a situation by lowering the short-term nominal interest rate, but that rate is now effectively zero. Other strategies for the central bank acting alone exist, including buying alternative assets to try to lower term or liquidity premiums and attempting to influence expectations of future inflation through announcements or commitments to expand the monetary base. The Bank of Japan has taken some steps in these directions but has generally been reluctant to go as far as it might, in part because of the difficulty in determining the quantitative impact of such actions and in part because of the Bank's view that problems in the banking system have "jammed" the usual channels of monetary policy transmission. Ironically, this obvious reluctance on the part of the BOJ to sail into uncharted waters may have had the effect of muting the psychological impact of the nonstandard actions it has taken. Likewise the Bank of Japan has resisted calls to manage the value of the yen (see, for example, McCallum, 2000, or Svensson, 2001), citing its lack of authority to do so as well as the prospect of retaliation from trading partners. The alternative approach to stimulating aggregate demand is fiscal policy--government spending increases or tax cuts. Here again the perception is that policy has been less than successful, although Posen (1998)--in a criticism reminiscent of those who have complained that the Bank of Japan should just "do more"--has argued that the problem is less that fiscal policy is ineffective than that it has not been used to the extent that one might gather from official plans and announcements. In Posen's view, Japan's debt problem is primarily the result of slow economic growth rather than active fiscal policies. However, besides possibly inconsistent application of fiscal stimulus, another reason for weak fiscal effects in Japan may be the well-publicized size of the government debt. The severity of the government debt problem may be overstated in some respects--95 percent of the outstanding debt is domestically held, for example, and 59 percent is held by public institutions, so that the Japanese people truly "owe the debt to themselves"--but that the government's annual deficit is now about 8 percent of GDP is nevertheless a serious concern. Moreover, an aging Japanese population will add to the government's budgetary burden in coming decades. In addition to making policymakers more reluctant to use expansionary fiscal policies in the first place, Japan's large national debt may dilute the effect of fiscal policies in those instances when they are used. For example, people may be more inclined to save rather than spend tax cuts when they know that the cuts increase future government interest costs and thus raise future tax payments for themselves or their children. (It is striking that, despite low interest rates, about 20 percent of the Japanese central government budget, or about 16.8 trillion yen this year, is devoted to servicing the national debt.) In economics textbooks, the idea that people will save rather than spend tax cuts because of the implied increase in future tax obligations is known as the principle of Ricardian equivalence. In general, the evidence for Ricardian equivalence in real economies is mixed, but it seems most likely to apply in a situation like that prevailing today in Japan, in which people have been made highly aware of the potential burden of the national debt. The principle of Ricardian equivalence does not apply exactly to increases in government purchases (for example, road building) but it may apply there approximately. If, for example, people think that government spending projects are generally wasteful and add little to national wealth or productivity, then taxpayers may view increased government spending as simply increasing the burden of the government debt that they must bear. If, as a result, they react to increases in government spending by reducing their own expenditure, the net stimulative effect of fiscal actions will be reduced. In short, to strengthen the effects of fiscal policy, it would be helpful to break the link between expansionary fiscal actions today and increases in the taxes that people expect to pay tomorrow. My thesis here is that cooperation between the monetary and fiscal authorities in Japan could help solve the problems that each policymaker faces on its own. Consider for example a tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt--so that the tax cut is in effect financed by money creation. Moreover, assume that the Bank of Japan has made a commitment, by announcing a price-level target, to reflate the economy, so that much or all of the increase in the money stock is viewed as permanent.9 Under this plan, the BOJ's balance sheet is protected by the bond conversion program, and the government's concerns about its outstanding stock of debt are mitigated because increases in its debt are purchased by the BOJ rather than sold to the private sector. Moreover, consumers and businesses should be willing to spend rather than save the bulk of their tax cut: They have extra cash on hand, but--because the BOJ purchased government debt in the amount of the tax cut--no current or future debt service burden has been created to imply increased future taxes. Essentially, monetary and fiscal policies together have increased the nominal wealth of the household sector, which will increase nominal spending and hence prices. The health of the banking sector is irrelevant to this means of transmitting the expansionary effect of monetary policy, addressing the concern of BOJ officials about "broken" channels of monetary transmission. This approach also responds to the reservation of BOJ officials that the Bank "lacks the tools" to reach a price-level or inflation target. Isn't it irresponsible to recommend a tax cut, given the poor state of Japanese public finances? To the contrary, from a fiscal perspective, the policy would almost certainly be stabilizing, in the sense of reducing the debt-to-GDP ratio. The BOJ's purchases would leave the nominal quantity of debt in the hands of the public unchanged, while nominal GDP would rise owing to increased nominal spending. Indeed, nothing would help reduce Japan's fiscal woes more than healthy growth in nominal GDP and hence in tax revenues. Potential roles for monetary-fiscal cooperation are not limited to BOJ support of tax cuts. BOJ purchases of government debt could also support spending programs, to facilitate industrial restructuring, for example. The BOJ's purchases would mitigate the effect of the new spending on the burden of debt and future interest payments perceived by households, which should reduce the offset from decreased consumption. More generally, by replacing interest-bearing debt with money, BOJ purchases of government debt lower current deficits and interest burdens and thus the public's expectations of future tax obligations. Of course, one can never get something for nothing; from a public finance perspective, increased monetization of government debt simply amounts to replacing other forms of taxes with an inflation tax. But, in the context of deflation-ridden Japan, generating a little bit of positive inflation (and the associated increase in nominal spending) would help achieve the goals of promoting economic recovery and putting idle resources back to work, which in turn would boost tax revenue and improve the government's fiscal position. Conclusion The Bank of Japan became fully independent only in 1998, and it has guarded its independence carefully, as is appropriate. Economically, however, it is important to recognize that the role of an independent central bank is different in inflationary and deflationary environments. In the face of inflation, which is often associated with excessive monetization of government debt, the virtue of an independent central bank is its ability to say "no" to the government. With protracted deflation, however, excessive money creation is unlikely to be the problem, and a more cooperative stance on the part of the central bank may be called for. Under the current circumstances, greater cooperation for a time between the Bank of Japan and the fiscal authorities is in no way inconsistent with the independence of the central bank, any more than cooperation between two independent nations in pursuit of a common objective is inconsistent with the principle of national sovereignty. I have argued today that a quid pro quo, in which the MOF acts to immunize the BOJ's balance sheet from interest-rate risk and the BOJ increases its purchases of government debt, is a good way to attack the ongoing deflation in Japan. I would like to close by reiterating a point I made earlier--that ending deflation in consumer prices is only part of what needs to be done to put Japan back on the path to full recovery. Banking and structural reform are crucial and need to be carried out as soon and as aggressively as possible. Although the importance of reforms cannot be disputed, however, I do not agree with those who have argued that deflation is only a minor part of the overall problem in Japan. Addressing the deflation problem would bring substantial real and psychological benefits to the Japanese economy, and ending deflation would make solving the other problems that Japan faces only that much easier. For the sake of the world's economy as well as Japan's, I hope that progres

Brexit : The Morning After

2016.06.24
by Paul Krugman

1. Economics
- Brexit will make Britain poorer. It will be substantial.
- Market access 에 대한 assurance가 그 나라에 대한 장기 투자에 큰 영향을 미치는 것을 알고 있다. 영국은 이번 브렉시트로 이런 assurance를 걷어차 버렸기 때문에 불이익을 받게 되고 이는 곧 생산성을 떨어뜨릴 것이다.
==>  market access 에 대한 assurance가 무슨말이지??

- 그러나 시장은 지금 파운드화의 폭락이나 영국 경제 침체와 같은 당장의 파급 효과에 대해서만 이야기 하고 있다. 파운드가 평소의 움짐임에 비해 크게 움직인건 사실이다. 그러나 emerging-market crisis를 경험해본 입장에서 이번 움직임은 그때에 비해서 큰 움짐임은 아님을 알 수 있다. 사실 영국 자체만 보더라도 역사적으로 크게 움직였던 움직임에 비해서는 크지 않았다. 70년대 및 1992년에 더 큰 움직임이 있었었다. 최근 5년간 파운드 차트를 보더라도 이번 하락은 world-class 급 하락은 아님을 알 수 있다.

- 더욱이 영국은 자국 통화로 회계 장부를 작성하는 나라이기 때문에 페소화 급락으로 인해 경제에 엄청난 타격을 입었던 아르헨티나와 같은 일을 일어나지 않을 것 이다.  브렉시트로 인해 자본이 급격하게 유출되고 이자율이 급등하는 일은 일어나지 않았다.

- 최근 5년간 영국 10년 채권의 이자율을 봐라.

- 전세계 주식 시장이 망가 졌고 채권 이자율을 더 낮아 졌다. 이런 현상은 중앙은행이 통화 정책을 매우 losse하게 유지 시키도록 할텐데 뭘 걱정해야 하나?

- 한가지 걱정으로 작용할 수 있는 것은 불확실성이 투자 심리를 위축 시킬 수 있다는 점이다.

2. Politics
- 사실 큰 문제는 영국과 유럽에 있어서 정치적인 이슈일 수 있다.
- 이번 사건으로 인해 유럽의 큰 프로젝트인, 경제의 통합을 통해 정치 통합을 이루고자 하는 노력은 굉장히 큰 곤경에 처하게 되었다. 브렉시트는 아마 populist/separist/xenophobic 운동들이 힘을 얻게 만드는 시발점이 될 것 이다. Secular stagnation으로 향하는 구조적인 유럽의 문제에 더해 이러한 정치적 이슈는 투자를 더욱더 꺼리게 만들 것 이다. 많은 사람들이 유럽의 미래에 대해 비관적이고 나또한 마찬가지 이다.
- 사실 이런 문제들은 Bremain이 되었더라고 할지라도 딱히 달라지지는 않았을 것이기는 하다.
- 다시 크루그먼 아저씨가 맨날 하는 이야기 등장

The big mistakes were the adoption of the euro without careful thought about 
1. how a single currency would work without a unified government; 
2. the disastrous framing of the euro crisis as a morality play brought on by irresponsible southerners; 
3. the establishment of free labor mobility among culturally diverse countries with very different income levels, without careful thought about how that would work. 

- 사실 브렉시트 사건 자체는 영국이 아니었다면 다른 어느 유럽 국가에서 나타 났을 단지 시간문제 였을 것 이다.
- 불필요한 데미지를 총리의 어리석은 판단으로 인해 얻게 된건 UK 자신이다.

So calm down about the short-run macroeconomics; grieve for Europe, but you should have been doing that already; worry about Britain.

Investing with style - AQR

https://www.aqr.com/library/journal-articles/investing-with-style

1. Most existing portfolios, even seemingly diversfied ones, are dominated by equity risk.
  - EX> 60/40 Stock/bond portfolio is 0.99 correlated to a 100% stock portfolio.

2. 전통적인 자산 고유의 수익률이 매우 낮아져 있다. Consequently, investors have turned their attentions to alternative sources of return, specifically those attempting to be uncorrelated with traditional assets.

3. One way to achieve uncorrelated returns is to seek pure "alpha"
  - In theory, alpha is the extra return achieved beyond any known risks or common systematic strategies. .... Unfortunately, alpha is at best elusive and, more often than not, illusive.

4. 알파를 찾는 어려운 일에 대한 이야기는 제쳐 두고, 이 페이퍼에서는 "Style" 이라고 부르는 기존 자산과 상관관계가 없고 positive return 을 만드는 충분히 입증된 전략에 대해 이야기를 해보자.

5. Def of Style
  - We define a style as a disciplined and systematic method of investing that produces unique long-term positive returns across markets and asset classes, with low to zero correlation with major long-only assets, backed by significant scientific evidence, both in- and out-of sample, and with strong economic intuition underlying it

6. 이것저것 찾아내려고 많은 사람들이 도전을 했고 나름 많은 것들을 발견했으나 DATA-MINING 의 한계에서 벗어나지 못한 것들이 대부분이다. 그러나 많은 정교한 테스트들을 통과한 Style 들이 있으니 그건 바로 value, momentum, carry, and defensive

7.  이 네개의 팩터를 이용해서 펀드를 만들었는데 다른 유명한 두 팩터인 size 및 illiquidity 팩터를 뺀 이유
- size : 수익이 robust 하지 않다. & Size cannot be easily applied across other asset classes such as currencies or commodities and entails betting to a large degree on less ilquid securies
- illiquidity

8. Identifying robust return sources is the first ingredient of successful style premia investing, and finding consistent evidence in many markets and asset classes achieve this aim.

9. Leverage, shorting, and derivatives are necessary to achieve these important objectives efficiently. Hence, putting together a portfolio of style premia requires careful portfolio design, proper portfolio construction, effective implementation and cost control, as well as sound risk management.

10.

투자는 -from JI

투자는 단순하지만 쉽지 않다.
하지만 겸손하게 열심히 하다보면 어느날 부쩍 성장한 본인을 마주할 거라 믿는다.
- JI

AQR - Shareholder Letter(2015)

1. AQR Equity Market Netural Fund
- provide investors with returns from potential gains of its long and short equity.
- Investment thems
  - Investor Sentiment
  - Stability
  - Country-Industry Pairs
  - Momentum-related themes(within industry, across industry and indirect Momentum)
  - Value signals within and across industries underperformed slightly
- 수익률 매우 우수


2. AQR GLOBAL MACRO
- invests four liquid asset classes : Fixed income, currencies, commodities and equities
- Within these asset class, we take both relative value and directional positions
- The strategy is long-term market-neutral, but can take directional views over the short term.
- The Funds' strategy trades predominately on macroeconomic news and trends, usuing a systematic, bottom-up approach that integrates quantitative and discretionary trading signals
- Investment philosophy : the insight that financial markets tend to underreact to macroeconomic news. ( This implies that macroeconomic news tens to have a persistent effect on asset prices. )
- Dax 롱 S&P 숏 쳐서 깨먹었다.

3. AQR Long-Short Equity Fund
- Using three different sources of return
1) the potential gains from its long/short equity positions by entering into Total Return Basket Swaps
2) overall exposure to equity markets, the use of futures contractrs
3) the tactical variation of its net exposure to equity markets
The strategy primarily seek to add alpha via its long/short (market-neutral) stock portfolio.
- 위에 1번 펀드랑 차이를 모르겠네. 수익도 비슷.

4. AQR MANAGED FUTURES STRATEGY FUND
- Cliff Asness 가 운용
- actively invests in futures and forward contracts both long and short across the global equity, fixed income, commodity and currency markets.
- The fund both use long & short trend following signals
- market reversal 에 신경 쓴다는 일반적인 이야기
- We expect that the correlation of this strategy to the equity markets will average close to zero over a full economic cycle.
- 에쿼티에서 2.6% 까먹고 커머디티에서 5.05% 수익(total 2%)
- Central bank 에 주목 (divergence of  policies)
- 보통 CTA들이 2015 1Q 에 유럽주식쪽의 strong rally 로 많은 수익을 냈다가 그리스 이슈로 많이 잃은듯. ( only to give back some of their gains as issues concerning Greece took center stage, and as the prospect for rising rates in the US became tangible in the second quarter)
- long term 시그널과 short term 시그널이 있는데 long term 의 경우 원자재로 인해 수익을 short term 시그널의 경우 손실을 봄
- 그래도 다른 CTA 전략들 보다는 성과가 좋았다고 이야기.
(SG Trend Index - 대형 헤지펀드 CTA전략 10개? 정도 수익률 모아서 만든 Index 인듯)


5. MULTI-STRATEGY ALTERNATIVE FUND
- 9.25% in 2015 & 7.9% annnualized daily vol, 0 correlation to equities
- There are nine strategies
- Three big gain strategies in 2015
1) Stock Selection Strategies
- Dedicated SHort bias(5.1%)
- Equity Market Neutral(+1.7%)
- Sentiment > growth > high-risk > valuation
2) Event Driven
3) Managed Futures - Trend following


6. RISK-BALANCED COMMODITIES STRATEGY FUND
- 망함

7. RISK PARITY FUND
- Risk parity investing involves allocating to investment by risk, which means that instruments with less risk generally be allocated more capital than instruments that are deemed riskers.
- 많이 깨짐. 약 -8%
- Despite a disappointing year, we stand by our conviction in the Fund's underlying premies and believe that it is a better long-term asset allocation strategy than a traditional equity-risk-centric allocation.
- 60/40 전략 대비 너무 무너짐...

8. STYL PREMIA ALTERNATIV EFUND
- 8.76%
-We employ market-neutral long short strategies across these asset groups based on four investment styles : VALUE, MOMENTUM, CARRY, DEFENSIVE
- 2015 Results
1) Defensive was the top contributor
2) Value : contributed with profits in equity indices, commodities, and fixed income
3) Momentum & Carry : detracted from performance
- Momentum : detracted in fixed income, equity indices and commodities
- Carry :detracted in commodities and currencies

20160614(화) - Japanese government bond yields fall to fresh low

http://www.ft.com/intl/cms/s/0/ac73458c-31d1-11e6-bda0-04585c31b153.html#axzz4BYiI2djN

“We think additional easing is only a matter of time as long as the BoJ adheres to its 2 per cent inflation target,” said Naohiko Baba at Goldman Sachs in Tokyo.

A range of tactical problems make it hard to act this week, however, even if the US Federal Reserve holds rates a day earlier. A dovish message from the Fed could push the yen up even further.

The BoJ’s biggest tactical obstacle is the Brexit referendum. If it eases this week and Britain then votes to leave the EU the yen might rise anyway. That risks fuelling a public perception that BoJ policy is ineffective.

Easing now also risks the appearance of political interference ahead of upper house elections on July 10, while the BoJ will not publish new economic forecasts — accounting for prime minister Shinzo Abe’s decision to postpone a scheduled rise in consumption tax — until its next meeting in July.

All of those factors make July a more likely date for action than June, although BoJ governor Haruhiko Kuroda likes to surprise.