Mishkin and I nevertheless argued that inflation targeting would improve U.S. monetary policy. For one, setting a permanent inflation target would create an institutional commitment to continuing the Volcker and Greenspan policies that had lowered and stabilized inflation, while producing two long economic expansions during the 1980s and 1990s. Just as important, from our perspective, the increased transparency that accompanies inflation targeting would, by shaping market expectations of the path of future interest rates, help the Fed to better achieve its objectives. In contrast, less transparent policies would keep markets guessing unnecessarily.
My diagnosis of the Japanese situation was right, I think. Indeed, the Bank of Japan would adopt my suggestions some fourteen years later. However, the tone of my remarks was sometimes harsh. At a conference in Boston in January 2000, I had started by asking whether Japanese officials were suffering from “self-induced paralysis,” accused them of having “hidden behind minor institutional or technical difficulties in order to avoid taking action,” criticized them for “confused or inconsistent” responses to helpful suggestions from academics such as myself, and concluded by blaming them for an unwillingness to experiment. “Perhaps it’s time for some Rooseveltian resolve in Japan,” I pontificated. Years later, having endured withering, motive-impugning criticism from politicians, editorial pages, and even fellow economists, I found myself wishing I had dialled back my earlier rhetoric. In 2011, in response to a question from a Japanese newspaper correspondent, I confessed, “I’m a little bit more sympathetic to central bankers now than I was ten years ago.”
“The Courage To Act” deserves a better title, but this is a well-written, jam-packed with details book, as much about the events as the man who was trusted to tame them.