The failure to inflate Japan

On January 22, 2013, the Government and the Bank of Japan issued a rare joint statement on overcoming deflation and achieving sustainable economic growth. The purpose of the statement was to introduce a two percent inflation target. It was issued jointly to emphasize that the monetary and fiscal authorities could be expected to coordinate for the purpose of achieving their shared goal--a clear attempt to enhance the credibility of the new inflation target.

On April 4, 2013, the BOJ explained how it intended to achieve the inflation target: Quantitative and Qualitative Easing. QQE is (more or less) standard monetary policy, except on a larger than normal scale. That is, the policy entails the creation of bank reserves (money) which are then used to purchase securities--primarily government bonds (JGBs).

At the time, I was skeptical that the policy would work as intended (see here). My skepticism has not abated since then. This post is about explaining why. In a nutshell, my argument is that while the BOJ seems willing to increase inflation, it is largely unable to--and while the government is able to increase inflation, it seems unwilling to. In short, the necessary policy coordination appears to be absent.

Let's begin with some basics. First, note that a JGB is basically an interest-bearing claim to (possibly) interest-bearing BOJ money. The total nominal government debt is the sum of BOJ money and JGBs. The fiscal authority controls the total supply of debt. The monetary authority determines its composition (between money and bonds). Quantitative easing increases the supply of money and reduces the supply of bonds held in the wealth portfolios of private agents. That is, it changes the composition of government debt without changing its level.

Because bonds are normally discounted (that is, they generally earn a higher yield than money), an open-market operation that alters the composition of government debt will generally have real and nominal consequences. But in present circumstances, the yield and risk characteristics of Japanese money and bonds are very similar.  In the limiting case where money and bonds are perfect substitutes (we're not quite there yet), altering the composition of government debt (without affecting its level) is inconsequential. It's like swapping one hundred dollars in $10 bills for one hundred $1 bills. Such an operation--even it is permanent--is not likely to have any measurable effect on the economy, including the price-level. Why should it? Empirically, it didn't seem to have any measurable impact on inflation the first time Japan tried QE from 2002-2006 (see also my 2003 paper here, section VI).

For the rate of inflation to rise, one of two things must happen: [1] the growth rate in the supply of nominal government debt must rise; or [2] the growth rate in the demand for government debt must fall.

One interpretation of what has happened in Japan (and elsewhere) is that a persistently bearish sentiment has led to an elevated growth in the demand for safe securities, like JGBs (at the expense of private investment). The effect of this force is to drive down bond yields and create deflationary pressure (deflation is a market mechanism for increasing the growth rate of the real quantity of nominal object when it is in short supply.) While the supply of nominal debt has been rising, ultra-low bond yields and lowflation suggest that the demand for debt has been rising even more rapidly.

According to the joint statement mentioned above, the government's commitment to helping the BOJ achieve the 2% inflation target amounts to reducing the demand for government debt by implementing reforms intended to create a bullish investment climate designed to stimulate real economic growth (the third of Abe's three arrows). While this is fine as far as it goes, what's the contingency plan in case the third arrow cannot be released or misses its mark?

In my view, the appropriate contingency plan would involve a promise to use nominal debt to finance (say) social security payments or tax cuts as long as inflation remains below target. This is essentially "helicopter money." The "money" in this case is government debt (whether the BOJ monetizes new debt or not is irrelevant if the two objects are perfect substitutes). Importantly (and as far as I understand), the BOJ has no authority to engage in helicopter money. Only the government can do this. And in present circumstances, my view is that only a commitment on the part of the government to adjust money/debt-finance expenditures to meet the inflation target can render it credible. The question is whether the government has expressed any willingness to support the inflation target in this manner. All the evidence I can find suggests that the answer is no.

To begin, the Japanese government appears to be very concerned with the size (and growth) of its public debt. From the joint statement above:

In addition, in strengthening coordination between the Government and the Bank of Japan, the Government will steadily promote measures aimed at establishing a sustainable fiscal structure with a view to ensuring the credibility of fiscal management.

Now don't get me wrong--everyone agrees that a "sustainable fiscal structure" is a good thing. The question is in determining what is sustainable. Of course, the debt-to-GDP ratio cannot rise forever. But it may certainly rise to a much higher level, even from its current elevated position, especially in light of how low interest rates presently are.

The government of Japan, however, appears almost obsessively concerned with deficit reduction. Publications from the Ministry of Finance seem to go out of their way in raising debt-sustainability alarm bells. Consider the contents of this Japanese Public Finance Fact Sheet, for example. Most of the document stresses the need for "fiscal consolidation" (deficit reduction) and includes lessons to be drawn from the European debt crisis. The graph of total government expenditure on page 4 strangely includes spending on the repayment of debt. And on page 3, there is the familiar and misleading "here is what a family's balance sheet would look like if it behaved like the government" exercise. This is a great way to promote the government's seriousness about stabilizing the debt-to-GDP ratio. But it is not, in my view, a policy that is consistent with helping the BOJ achieve its 2% inflation target.

And by the way, just how serious is the government debt problem in Japan? Japan's debt-to-GDP ratio is presently 250%, or so we are told. As it turns out, this figure overstates the level of public debt (see here, section 3.1). The 250% figure represents gross debt, which includes government loans and certain intragovernmental transfers, all of which should be netted out. Once this is done, the net debt-to-GDP ratio is closer to 150%.

Moreover, if one further accounts for the sizable quantity of government assets, the ratio falls to 100% (see the balance sheet of the central government here on page 51). And finally, if one was to view the fact that 40% of government bonds are held by the BOJ and likely to remain monetized, the ratio falls further still. In my view, the very low yield on JGB's reflects the market's assessment that public finances in Japan are nowhere near being out of order (a caveat to this view here).

So, relative to the market demand for their product, the government of Japan appears to be in "austerity" mode--it is bent on limiting the supply of highly-valued JGBs. In the meantime, the BOJ is aggressively purchasing the limited supply of JGBs to the point where it is now worried that the supply of bonds available for purchase will soon be exhausted (story here).

How can the BOJ credibly promise to continue with its bond purchases until its inflation target is met? It can't. Not without the proper support from the government, which appears not to be coming anytime soon. And so, after a transitory blip in inflation following the austerity-induced VAT, headline CPI is back near zero territory.

Partly out of a concern over running out of eligible securities to purchase, the BOJ recently announced a new negative interest rate policy (NIRP) with yield curve control (YCC); see here. The intervention appears to have little impact on inflation expectations (inflation and inflation expectations today are similar to the early 2000s, prior to the financial crisis).

Let me conclude. First, this post is not meant as an argument in favor of the 2% inflation target. Second, it should not be construed as an argument against the Japanese government's debt management strategy. Nor is it an argument against the BOJ's asset purchase program. I will discuss these issues in a subsequent post.

The point of this post is as follows. IF the monetary and fiscal authorities wish to implement a 2% inflation target, THEN success of the policy (in present circumstances) requires a sufficiently accommodative fiscal policy (deficit financed expenditures and/or tax cuts) when inflation and inflation expectations are running below target. Absent this commitment on the part of the fiscal authority, the endeavor is ultimately doomed (if an overall bearish outlook persists) and--as a consequence--the credibility of a monetary authority that keeps promising an inflation it cannot deliver may at some point be jeopardized.

Additional readings:
[1] Understanding lowflation.
[2] A model of U.S. monetary policy before and after the great recession.

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The program can't start because api-ms-win-crt-runtime-l1-1-0.dll is missing

This problem is often encountered when running Microsoft Office, Adobe Products or even Apache server.

Base on this entry from stack overflow: http://stackoverflow.com/questions/33265663/api-ms-win-crt-runtime-l1-1-0-dll-is-missing-when-opening-microsoft-office-file you can do the steps below to solve the issue:

1. Go to Start - Control Panel - Windows Update Check for updates
2. Install all available updates. After the updates are installed,
3. Restart your computer.
4. After the restart repeat the steps above again until no more updates are available.

Download the Visual C++ Redistributable:

For Windows 64-bit http://download.microsoft.com/download/9/3/F/93FCF1E7-E6A4-478B-96E7-D4B285925B00/vc_redist.x64.exe

Run the vcredist_x64.exe (64-bit) or vcredist_x86.exe (32-bit) and select Uninstall Run the .exe again and select Install.

--

What works is:

1. Update my Window 7 to SP1
2. And installing https://support.microsoft.com/en-us/kb/2999226,different version exists for different OS

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My MacBook can't connect to my wifi where it used to before

This solution assumes that you already tried Network Diagnostic (Open System Preferences->Assist Me->Diagnostics) solution but still failed to connect to your wireless device. What's more confusing is that you used to connect to this wireless device before and was even surfing the web last night. And worst is that you can connect your other laptop to it :-)

There are many common connection problems like security type incompatibility, distance of your macbook to your device, etc. But in my case the problem was the DNS. I'm always using google dns: 8.8.8.8 and 8.8.4.4, but it failed me. So what I did was use another DNS provider (OpenDNS) 206.67.222.220.

Here's how:

1. Open System Preferences
2. Select Network
3. Click Advanced and open the DNS tab.
4. Add Open DNS and click Ok.

5.) Turn wifi off and then on and try to connect.

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Broen uten trafikk II

Nordlys har gravd seg godt ned i skyttergraven i debatten om ny Kvaløyaforbindelse, og argumenterer for en forhastet beslutning som skal gi en bro uten trafikk. 

Ingen av alternativene til ny Kvaløyforbindelse er samfunnsøkonomisk lønnsomme, heller ikke broen fra Selnes som Nordlys ivrer for. Det har kommunen og vegvesenet kommet frem til i en rapport.

Med forutsetningene som er gjort bør det altså ikke bygges noen bro i det hele tatt. At en bro ikke er samfunnsøkonomisk lønnsom betyr at de totale kostnadene er større enn nytteverdien. På vanlig norsk kaller vi det sløsing.

Årsaken til denne litt merkelige konklusjonen er at kommunen og vegvesenet har forutsatt at trafikken ikke skal øke. Men, som jeg har skrevet før, da er det jo heller ikke noe behov for en ny forbindelse.

Likevel har vegvesenet og kommunen filosofert litt over «ikke-prissatte konsekvenser» og kommet frem til at det likevel bør bygges en ny bro parallell med den gamle. Mange av disse vurderingene er ren synsing som ikke burde tillegges særlig vekt.

For eksempel står det i rapporten at å legge forbindelsen i tunnel hvor bare innslagene er synlig, er like ødeleggende for landskapsbildet som ett av bro-alternativene. En helt grei subjektiv estetisk vurdering som noen vil være enig i og andre uenig. Altså synsing.

Rapporten trekker også frem utbyggingspress mot dyrket mark som en stort problem. Det er jo et helt kurant politisk standpunkt, men andre vil kanskje mene at med Norges nest mest overopphetede boligmarked vil det være en fordel om kortere veg til sentrum gjør det mulig med utbygging av det som i dag er perifere jordbruksområder. Mange vil til og med mene at det er ganske unaturlig å ha store jordbruksområder tett inntil sentrum, og at jordbruk egner seg best et stykke unna der arealkostnaden er forholdsvis lave.

Det mest oppsiktsvekkende med rapporten er imidlertid at behovet for boligareal bare så vidt er nevnt, til tross for at en ny forbindelse vil være helt meningsløst uten betydelig utbygging. Tilgang til rimelige tomter utgjør jo en betydelig samfunnsøkonomisk gevinst, men den er ikke en gang forsøkt prissatt i rapporten som foreligger.

Forklaringen jeg har fått fra vegvesenet tyder på at de mangler kompetanse til dette. Fordelen av billige tomter lar seg ikke putte inn i dataprogrammet de bruker, og det er tilsynelatende ingen der som kan gjøre slike beregninger på egen hånd. Når en såpass viktig ingrediens mangler i regnestykket er ikke rapporten særlig grundig.

Hvorfor Nordlys likevel velger å karakterisere rapporten som nettopp grundig er derfor et stort mysterie. Jeg regner med at Nordlys har lest rapporten og at avisen er klar over at boligbygging er hovedargumentet for en ny forbindelse. En rapport som nesten ikke sier noe om dette er altså grundig ifølge Nord-Norges største avis.

Nordlys trekker også frem at en Håkøyaforbindelse må bli en bilbasert løsning, men det trenger den slett ikke. I følge rapporten vil det være lite aktuelt å lage et kollektivsystem til en Håkøyaforbindelse på grunn av avstanden til bebyggelsen. Men et annet sted i rapporten står det at Håkøya ikke er et bra alternativ fordi det vil gi utbyggingspress et sted langt fra dagens gode kollektivsystem.

Dette er jo et reductio ad absurdum: Håkøyaalternativet må bli bilbasert fordi bebyggelsen og kollektivtilbud blir omtrent som i dag, men det er samtidig et problem at Håkøyaalternativet vil gi store endringer i bebyggelsen.

Det er selvsagt ingen ting i veien for at en Håkøya-forbindelse utelukkende blir en kollektivtrasé dersom politikerne ønsker det. En mulighet er jo å lage pendlerparkering i tilknytning til et kollektivknutepunkt ved Håkøya. Med stor boligutbygging i området rundt Håkøya vil det også være mange som ikke vil ha behov for bil i det hele tatt.

Til sist gjør Nordlys et poeng av at det skal være vanskeligere å finansiere en Håkøyaforbindelse. Faktum er at Håkøya-tunnel bare koster 700 millioner mer enn Selnes-alternativet ifølge rapporten. Sannsynligvis vil Håkøyaløsningen gi større samfunnsøkonomiske gevinster i form av rimelige sentrumsnære tomter. Det tror jeg er et argument som samferdselsdepartementet vil høre på.

Rapporten som foreligger er mangelfull. Det vil derfor være uansvarlig å bruke den som eneste faglige grunnlag. For at ikke Kvaløyaforbindelsen skal bli en ny E8-sak må det lages en ny og grundigere rapport. Det har nå gått så mye prestisje i saken at den må lages av noen uten tilknytning til Tromsø eller Statens Vegvesen.

Det vil i så fall bil en veldig billig forsikringspremie for en investering på flere milliarder kroner. Nordlys klager over økte kostnader fordi den forrige rapporten kostet 13 millioner kroner. Det er lommerusk sammenlignet med de potensielle konsekvensene. Siden den gjeldende rapporten uansett forutsetter at trafikken ikke øker fra dagens nivå, er ikke en ny forbindelse prekær. Det er derfor uansvarlig av Nordlys å presse på for å beholde den premature beslutningen som er gjort i denne saken.

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How to implement an image streamer for primefaces graphicimage component

This page provide code samples for using primefaces graphic image component. In this case we are assuming that the byte data of an image is stored in an entity and that entity is access by its id. See the param id in #1.
The param id is read by the streamer and use to fetch the entity that stores the byte[] data.
1.) In the JSF page, let us define a graphicImage component like this:

<p:graphicImage id="serviceImage" cache="false"
 value="#{customImageStreamer.image}" height="150"
 width="150">
 <f:param name="id" value="#{myService.entity.id}"></f:param>
</p:graphicImage>

2.) Let us define a generic image streamer that we can extend.

public abstract class ImageStreamer<T extends BaseEntity> {

 public StreamedContent getImage() throws IOException {
  FacesContext context = FacesContext.getCurrentInstance();

  if (context.getCurrentPhaseId() == PhaseId.RENDER_RESPONSE) {
   // So, we're rendering the HTML. Return a stub StreamedContent so
   // that it will generate right URL.
   return new DefaultStreamedContent();
  } else {
   // So, browser is requesting the image. Return a real
   // StreamedContent with the image bytes.
   Long id = Long.parseLong(context.getExternalContext().getRequestParameterMap().get("id"));
   T obj = getPersistenceService().findById(id);
   if (getImageArr(obj) != null) {
    return new DefaultStreamedContent(new ByteArrayInputStream(getImageArr(obj)));
   } else {
    return new DefaultStreamedContent();
   }
  }
 }

 public StreamedContent getImage(T obj) throws IOException {

  // So, browser is requesting the image. Return a real
  // StreamedContent with the image bytes.
  if (getImageArr(obj) != null) {
   return new DefaultStreamedContent(new ByteArrayInputStream(getImageArr(obj)));
  } else {
   return new DefaultStreamedContent();
  }

 }

 protected byte[] downloadUrl(URL toDownload) {
  ByteArrayOutputStream outputStream = new ByteArrayOutputStream();
  InputStream stream = null;

  try {
   byte[] chunk = new byte[4096];
   int bytesRead;
   stream = toDownload.openStream();

   while ((bytesRead = stream.read(chunk)) > 0) {
    outputStream.write(chunk, 0, bytesRead);
   }
  } catch (IOException e) {
   return null;
  } finally {
   if (stream != null) {
    try {
     stream.close();
    } catch (IOException e) {
     return null;
    }
   }
  }

  return outputStream.toByteArray();
 }

 public abstract PersistenceService getPersistenceService();

 public abstract byte[] getImageArr(T obj);

}

3.) The actual class implementation that streams the image. Note that it must be applicationScoped.

@Named
@ApplicationScoped
public class StudentImageStreamer extends ImageStreamer {

 @Inject
 private StudentService studentService;

 @Override
 public PersistenceService getPersistenceService() {
  return studentService;
 }

 @Override
 public byte[] getImageArr(Student obj) {
  return obj.getImageAsByteArr();
 }

}

If you have another class that needs streaming for primefaces graphic image, then just create another class that extends ImageStreamer.

References:
http://stackoverflow.com/questions/8207325/display-dynamic-image-from-database-with-pgraphicimage-and-streamedcontent

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U.S. postwar growth and the pop in epop

Here's the picture of real per capita GDP growth in the postwar United States.

While this is an impressive record of economic development, the recent trajectory away from (log-linear) trend has many people concerned. I share this concern. But I sometimes wonder whether the assumption of (log-linear) trend does not distort our view a little bit. In particular, one might alternatively view the pattern of economic development as "naturally" alternating between episodes or more or less rapid growth, kind of like this...

This representation of "trend and cycle" is a little disconcerting in that it suggests that there is no obvious reason to expect "mean-reverting growth" any time soon. On the other hand, perhaps there is some comfort to be drawn as well. In particular, we've been there before and we somehow managed--not only to survive--but also recover. (Related post: Secular stagnation then and now).

In today's post, I want to look a little more closely at that recovery phase. While I think that a growth recovery is in the cards at some point, I'm not sure we should be expecting it to be as robust as what we experienced in the immediate postwar period or in the 1980-90s. The latter growth episode in particular was driven at least in part by a demographic force that appears to have largely dissipated. The pop in epop has popped, so to speak:

Whatever drives secular growth, it obviously cannot rely on an ever-rising employment-to-population ratio (EPOP). But EPOP can nevertheless rise for decades, as it did in the 1975-2000 period, giving the impression of secular (rather than transitory) growth.

How much did the transitory increase in EPOP contribute to GDP growth? To get a rough answer for this question, suppose that EPOP remained fixed at 58% throughout the entire sample period and subtract the amount (EPOP(t) - 0.58)*GDP(t) from the actual real per capita GDP at date t. Here's what we get:

That is, unlike the economic boom of the immediate postwar period, the more recent 80-90s boom was driven in part by a pop in EPOP. For those that prefer a log scale:

Viewed from this perspective, the growth spurt beginning in the early 1980s does not look as impressive, though it's still pretty good. And unless there's reason to believe that a similar pop in EPOP is in store in the near future, it might be prudent to scale back our forecasts for longer-term economic growth accordingly.

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Mindre aksjer - samme gevinst

Med 70 prosent av Oljefondet i aksjer allerede fra 1998 skulle en tro avkastningen ville blitt skyhøy. Den gang ei.

Du har hundre tusen kroner på bok. Rentene på bankkonto er ikke mye å skryte av, så du ønsker å plassere noe i aksjemarkedet. Desto større andel av pengene du plasserer i aksjemarkedet, desto større risiko tar du. Med en høy aksjeandel kan du derfor risikere å tape store deler av formuen. På den annen side er forventet avkastning over tid langt bedre i aksjemarkedet.

Dette er den tradisjonelle tankegangen blant profesjonelle forvaltere. Aksjemarkedet er risikabelt. Rentemarkedet er trygt. Setter du mer penger i aksjemarkedet vil avkastningen øke mye, men prisen du betaler er høyere kortsiktig risiko.

Med dette som utgangspunkt har et offentlig utvalg funnet ut at aksjeandelen i oljefondet bør økes til 70 prosent. Dessverre stemmer ikke denne forståelsen overens med virkeligheten. Problemet er at det er liten forskjell på risikoen i oljefondets renteportefølje og aksjeportefølje. Som følge av dette har oljefondet fått betalt omtrent like mye for sine plasseringer i rentemarkedet som fra aksjene.

Resultatet er, som figuren viser, at om stortinget allerede i 1998 hadde bestemt seg for 70 prosent aksjer, så ville fondet vært omtrent akkurat like stort som i dag. I moderne finansmarkeder er det et ganske stabilt bytteforhold mellom avkastning og risiko, så når avkastningen er så lik tyder det på at risikoen også er det. Dette bekreftes av at fondets samlede risikojustert avkastning er negativ.

Noe av årsaken kan ha vært fondets hodeløse spekulasjonen i rentepapirer før finanskrisen og at rentenivået generelt har sunket siden oppstarten. Ingen av disse effektene kan imidlertid forklare at avkastningen til aksjer og rentepapirer har vært så lik også de siste årene.

Å øke aksjeandelen vil dermed ikke øke risikoen særlig mye, men det er altså fordi fondet allerede har så mye risiko i renteporteføljen. Både politikere og befolkningen ellers bør altså være klar over at med dagens investeringsstrategi så er renteinvesteringene ikke særlig tryggere enn aksjeinvesteringene.

Årsaken til dette er «handlelisten» for rentepapirer som finansdepartementet har gitt til oljefondets forvalter NBIM. Handlelisten kalles gjerne for «referanseindeksen». Som for alle handlelister, følger ikke NBIM denne slavisk. De vet imidlertid at det blir trøbbel hjemme om for mange impulskjøp havner i handlevogna på veien gjennom butikken. Den totale risikoen i oljefondet er derfor hovedsakelig bestemt av slike indekser.

Når det gjelder aksjer kan ikke finansdepartementet utvise noe særlig skjønn når de skal sende NBIM ut på handletur. Denne listen er bestemt av hvor stor andel markedsverdien til hvert selskap utgjør av verdens aksjemarked, og det er ikke mye departementet kan gjøre med det.

Men slik er det ikke for renteplasseringene. Her vil valg av indeks være helt avhengig av hvor mye risiko vi ønsker å ta. Velger vi en handleliste som representerer gjennomsnittet av alle rentepapirer i markedet får vi mye søppel i porteføljen og en risiko som er nesten like høy som i aksjemarkedet. Som Trym Riksen nevnte i denne spalten i forrige uke, kan det hende at vi reelt sett allerede er oppe i 70 prosent aksjerisiko på grunn av risikable obligasjoner i porteføljen.

For at Stortingets skal kunne ta en informert beslutning om fondets risikoprofil burde derfor valget stå mellom aksjer og risikable obligasjoner på den ene siden, og et nært risikofritt alternativ i form av kortsiktige statspapirer på den andre. Sistnevnte gir i dag negativ realavkastning. I så fall ville argumentene for økt aksjeandel vært bedre.

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