PAUL KRUGMAN: Japan May Have Solved The Biggest Monetary Policy Problem Of This Era

In earlier parts of our interview with Paul Krugman, we discussed the deficit and the economy and the way technology was affecting inequality.

Another popular topic right now is Japan, and whether Shinzo Abe, the new Prime Minister, can make good on his desire to stoke inflation, and get the country out of its decades-long liquidity trap.

In this segment, Krugman explains that one of the problems with modern central banking is that people believe their too credible in their desire to stamp out inflation when it starts to pick up. So in other words, the Central Bank may say it will let growth and inflation run hot for awhile (so that nominal GDP can catch up to trend) but nobody believes that they'll actually do that.

What Japan may be in the process of doing -- by having the Bank of Japan take orders from the Ministry of Finance and the new Prime Minister -- is solve this problem, by having the bank commit to being irresponsible.

Watch below.

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