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ECB Needs Japanese Lessons

Gilbert, Μ. (2014) “ECB Needs Japanese Lessons“, Bloomberg View, 05 Νοεμβρίου.

 

Economists like to warn about Japanification, the risk that a country will follow the desultory experience of Japan, which slumped into deflation in 1999 and for all intents never climbed out. As Europe slides closer to deflation, the European Central Bank should heed the historical experience and the current efforts by the Bank of Japan to resuscitate growth.

Here’s a chart showing annual consumer price changes in the euro region compared with those in Japan since 1999:

Chart1Bloomberg

The euro area is perilously close to deflation. The ECB target — consumer price inflation of just under 2 percent — grows more distant. The European Commission said yesterday it sees euro-area inflation running at just 0.8 percent in 2015, as it cut its prediction for the region’s growth this year to 0.8 percent from the 1.2 percent it anticipated in May.

And yet, the ECB’s balance sheet has been shrinking as the BoJ’s has swollen:

Chart2Bloomberg

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