A Quiet Revolution in Central Banking

The last couple weeks have been nothing short of revolutionary in central banking, but don't feel too bad if you didn't notice. Three major events occurred that tell us that the era of inflation-targeting is over and that the era of nominal-targeting has begun. This presents profound implications for the economy generally and for fixed income specifically, even if none of these events portend any immediate change in policy.

First, let's review some background. Despite Japan's long and painful economic malaise, this economy's growth and inflation rates have been remarkably stable over the last 20 years, just always at very low levels. Under inflation-targeting, this seems to be a reasonable outcome. The goal is to keep inflation low and stable, with the implicit assumption that the economy will recover on its own....622 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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