Edmund Phelps on the 80's High Unemployment Problem in Europe

In 2006, Edmund S. Phelps from Columbia was awarded the Nobel Prize "for his analysis of intertemporal tradeoffs in macroeconomic policy".  Phelps works have brought micro economics analysis in incentives of employers and employees to explain macro economic phenomena, unemployment and a natural rate of unemployment.

While studying his works, I was amused by his study on the 1980's Europe. During the first half of the decade, European countries experienced increasing unemployment rate.

His interest in the 80's Europe rests on a fact that there was no evidence of unexpected disinflation or deflation while unemployment rate was rising in the Europe. Rise in unemployment rate in Europe started when the most of the world experienced recession in the early 1980's. However, the unemployment rate in the Europe prevailed at the higher rate while unemployment in the US continuously decreased following a hike during the recession.

Then Phelps tried to solve this puzzle of high unemployment rate together with not so much deflation in Europe. First, he gave an argument on why this surge in the unemployment rate couldn't be explained by some fiscal tightening in Europe if it had one. He disproves fiscal austerity explanation for the unemployment rise by two parts. First, he just looks at the budget deficits of the leading countries in the area. He found that, in fact, there wasn't an evidence of fiscal tightening on the budget balance sheet. The following table shows that the following countries were having an easier fiscal policy than they had in 1980, when the unemployment wasn't high, during the first half of the 80s.  Moreover, he temporarily borrows a Keynesian hat and tries to see what Keynesian theory would say if there was indeed a fiscal tightening, and the the unemployed surge was caused by it. If there was a fiscal tightening during this period, decrease in the government spending or increase in tax would lower nominal interest rate according to IS-LM model "assuming that the supply of money is not permitted to change course in response." However, the empirical evidence doesn't support this Keynesian argument for high unemployment rate because the nominal interest rates in leading European countries except Denmark were higher during the period than they were in 1977.

Phelps further states:

"The evidence is all the more crucial when we reflect that, whatever the
cause, the resulting contraction of employment per se would tend to
slow the growth of nominal wages, thus to reduce the inflation premium
in nominal interest rates that borrowers are willing to pay, and hence,
other things equal, to lower interest rates. The rise of the average
European nominal interest rate is thus doubly hard to square with the
Keynesian fiscal hypothesis."

He finally gives some hope for Keynesian theory by offering a counterfactual argument that if there hadn't been fiscal tightening, the nominal interest rate, output and velocity of money would have been even higher. Therefore, according to Keynesian explanation, there was indeed fiscal tightening, that in fact lowered the nominal interest rate even though the nominal interest rate increased in absolute value. Therefore, Keynesian theory has no problem of telling the story of high unemployment in Europe. However, Phelps argues that in order for this Keynesian explanation to work, there has to be another contractionary shock other than fiscal tightening that raises the nominal interest rate while it contracts employment. If, according to him, there is not such another shock, a lone fiscal tightening would only lower the nominal interest rate in absolute term, but the nominal interest rate increased. To me, the interesting part of his argument is whether there could be a such contractionary shock that raises the nominal interest rate while contracts employment.

To explain this high unemployment period, Phelps proposed broader explanation for it which says that there was a change in the natural rate of unemployment. I will write about his explanation for rise in the natural rate of unemployment in a later post. To prepare my readers for that, I will end this post by quoting the conclusion of his paper (Phelps 1986, 509):

Our vision of the persistence of unemployment in Europe posits a
considerable degree of real wage stickiness, whether loosely imple-
mented through private understandings or enforced by public provisions
for indexation. If, to take the extreme case, the real wage of an employee
is a constant and if, as a consequence, the real cost savings (also
expressed in consumer goods) to the firm of laying off an employee,
which is the true cost of using the employee in production in view of any
benefits paid to the laid off, is likewise a constant, in the sense of having
been earlier predetermined for the course of his employment, a decline
in the real marginal-revenue productivity of labor as a result of devel-
opments such as a rise of markups, a real depreciation of the currency,
a fall of the real price of capital goods output, or a contraction of the
capital stock will cause some employees to be laid off. Further, unless
the real marginal productivity schedule is restored, laid-off workers will
remain laid off for the balance of their years as employees. In this extreme
case of real wage stickiness, it is only the entrance of new workers,
insofar as they can make deals for employment at reduced real wages in
view of the reduced marginal-revenue productivity of labor, that will
erode the average value of the real wage; but this statistical adjustment
will do nothing to put laid-off workers back to work. To the extent that
customer markets inhibit the rise of new firms to absorb the young while
contracts protect existing laid-off employees from being passed over for
recall in favor of hires of cheaper workers from the outside, new entrants
will end up bearing a share of the economy's unemployment-indeed an
increasing share as new entrants accumulate and the laid-off take the
places of retiring workers.

In the expectational sense, the equilibrium unemployment rate is thus
increased, and the natural rate with it. Yet their "long-run" values need
not have increased. (Also, it is not implied that the equilibrium rate
increased as much as the actual rate.)

Deadline is here: NBA trade deadline

(This is a post I wrote on last Wednesday, a day before the NBA trade deadline.)
While trying to find what to write about on today's post, I realized I was so exhausted by today's exam questions on macro economy. Also, I have recently been writing about monetary policy pretty much, so I thought why I shouldn't write about something totally different but still related to economics.

Tomorrow, February 20th is the last day on which the National Basketball Association (NBA) teams are allowed to trade their current players. For people who follow the professional sports, this kind of trade deadline is pretty familiar. Major European professional soccer leagues and American professional sport leagues have this deadline.

For people who might not be familiar with the NBA roster system, it is like this:

New players out of college basketball or foreign countries enter the NBA draft in each summer to get selected by the NBA teams, And the team and the player signs a contract which is guaranteed at least for two years. In other words, the player is now the teams's asset. (You remember a guy named Trey Burke, right? Well, he isn't doing bad out there)  The team has full control over where the player plays until the contract expires. In other words, if the team wants to trade the player, the team can do it without an agreement from the player in general. Once any given contract between a team and a player expires, the player can sign with any team he wants (with some exceptions). A player with no current contract is called a free agent.

Right now, I am pretty sure almost all 30 managers of the NBA teams are phoning each other to offer a trade to other teams. The main reasons any given NBA team wants to use this deadline and trade players are following:

First, a team believes they are contender for the championship, therefore it tries to maximize its possibility of becoming champion by adding better players to their current roster, This decision is almost a pure basketball decision. We can see this type of trade offers from the Houston Rockets to the Boston Celtics for Rajon Rando.

Second, a non-contender team which has a very good player whose contract is expiring after this year might want to trade this player for the best possible returns if the star player is unlikely to sign again with the team. This decision is half basketball and half financial decision. Since the team wants solid players whose contracts aren't expiring in next year in return for their star player, it still considers its future basketball success. But also the team doesn't want to just let the star player go away in the summer and leave the team with nothing in return. Therefore, the team is trying to maximize the benefit from the player by trading him. This type of decision is made for economic reasons. Again, the Boston Celtics is a team that might want to trade their superstar point guard Rajon Rondo because of his expiring contract.

Third, some trades could be seen as a pure financial decision. A team with a player who has very high salary but doesn't have great value to the team might want to trade this player for some players with low salary before the deadline. By doing so, the team will have more salary space under the salary cap, which is the upper total salary limit for any team, and it will be able to sign a big contract during the summer. In other words, the team is emptying its balance sheet to have enough space to sign a big contract in the future. The team doesn't really care about its success in this season, so it is not a basketball decision in short-run. Right now, one of the hottest trade rumors has been circling the Los Angeles Lakers and Pau Gasol, whose contract says he will make $19.3 million next year compared to average NBA player salary of $3.8 million (even though that says average, that is still...)

I hope, as a basketball fan, to see one or two blockbuster trades involving a superstar or two before tomorrow trade deadline. I am sure NBA team general managers will surprise me tomorrow. The clock is ticking.

Public Perceptions of the Forward Guidance

In my recent posts (here and here), I have been writing on the FED's forwards guidance program. To me, the forward guidance program is as interesting as the FED's co-unconventional tool, the quantitative easing, is if not as effective as it is. (Actually, I am interested in writing on the QE's aggregate effect on the recovery, but it is scary stuff to touch on) The FED implements the forward guidance (or open-mouth-operation) program to inform the market on when how long the FED will pursue the low interest rate policy and by doing so, it hopes to induce greater investment and consumption from the firms and consumers through the expected low short-term interest rate.

In their recent paper on the effects of forward guidance on the public's perception, Sack et al. suggested two possible public's interpretations of the change in the FED's forward guidance program. Here, the change in the forward guidance program means an extension on the current low interest rate policy. This is exactly the case we are in right now, where the FED has created market expectation that it would raise the short term interest rate as the unemployment rate reaches 6.5%, but now it faces an apparent slight change in their forward guidance policy. According to the authors, the FED's change in the forward guidance policy can get two possible reactions from the market.

First, the market could see the delay of the increase in short-term interest rate as a bad news. In other words, the private sector could interpret the FED's move as a sign of a weak recovery because it believes that the FED extended the low interest rate policy because the economy isn't recovering as the FED presumably forecasted when it set its former policy or the date of the increase in interest rate. In other words, this change in the forward guidance can lower the private sector's confidence in the recovery.  If this is indeed the case, the extension on the low interest policy can't have a positive effect on the behavior of firms and consumers.

The second way the public may interpret the change in the forward guidance is that it could think the FED extended the low interest rate policy to "maintain a more accommodative policy position for a longer period for a given set of macroeconomic conditions."  Unlike the first case, if the public indeed sees the more period of low interest rate as the FED's more aggressive stand on the recovery, the public expect the economy to recover sooner. In that case the, the effect of the forward guidance program on the investment and consumption will be positive.

Therefore, to have a positive effect it initially hoped to have on the consumption and investment through the forward guidance program, the FED now has to tweak its forward guidance policy in a such manner that the public will see the change in the policy as a more accommodative policy rather than just a weak recovery fix.

I want to finish the post asking Ben Bernanke to summarize the points made in this post. Bernanke explained this two possible perceptions very clearly in his following statement made in 2012:

"Has the forward guidance been effective? It is certainly true that, over time, both investors and private forecasters have pushed out considerably the date at which they expect the federal funds rate to begin to rise; moreover, current policy expectations appear to align well with the FOMC's forward guidance. To be sure, the changes over time in when the private sector expects the federal funds rate to begin firming resulted in part from the same deterioration of the economic outlook that led the FOMC to introduce and then extend its forward guidance. But the private sector's revised outlook for the policy rate also appears to reflect a growing appreciation of how forceful the FOMC intends to be in supporting a sustainable recovery."

Factors That Affect Effectiveness of Forward Guidance

The "forwards guidance" has been he FED's one of the novel tools to boost the economy after the recession at the zero lower bound. Forward guidance is the FED's public statement on how it will change or unchange the federal funds rate. We can see the latest forward guidance statement from the FED's January statement:

Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

Essentially, what the FED tries to achieve by such statements is to guide the market expectation of the interest rate. The FED has been using forward guidance to lower the market expectation of interest rate during the period it stated.

I should explain two types of forward guidance as introduced by Campbell et al. (2012). Odyssean type of forward guidance is when the FED commits to low interest rate policy even after the economic condition raises the natural interest rate above zero, and Delphic forward guidance is when the FED publicly forecasts its monetary policy's shape regarding the future shocks in the economy. We can see that the FED has been pursuing the Odyssean forward guidance since September 2012 because it publicly stated then that the the low interest rate policy would stay even after the economy strengthens:

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Having talked the basics of the forward guidance, we should study further what factors play a role in effective forward guidance program. First, the FED's credibility decides whether the forward guidance will achieve its goal of lowering the market expectation of interest rate.If the market doesn't believe in the FED's plan for the future interest rate, the forward guidance cannot stimulate the economy as the FED hopes. After all, what the forward guidance's mechanism bases on is the FED's policymakers' hope that the market will take the FED's statement on the future of the monetary policy as granted. Reports are coming in saying that the FED has lost its credibility since the FED is no way raising the federal funds rate even though the unemployment rate is very likely to reach 6.5% very soon. I can understand why this might distort the FED's credibility. If we look at the FED's October meeting's press statement, following statement follows the same statement in the January statement above. October's statement reads:

 ...In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.

But in December, the FED added one more statement following the above statement. The added statement follows:

...The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal.

From this change in the forward guidance, one can say that the FED didn't follow what it forward guided previously. But to me, I don't see any credibility problem for the FED. Didn't the FED literally say in the above statement that it will more likely to extend the low interest rate even past the time unemployment rate drops below 6.5%? Didn't the FED have to modify its stand on its future interest rate policy according to the economics condition? Therefore, seeing the FED as not committing to its forward guided policy is like saying the FED has one chance to state what the interest rate will be in the next few years, and if it doesn't follow that, we cannot believe in the FED.

Rather, I think the FED faces credibility problem when it suddenly increases the interest rate when the unemployment rate lowers to 6.5% because current forward guidance tells us that the FED will very likely be pursuing near zero interest rate even after the unemployment rate hits the threshold.

Second factor that determines the effectiveness of the forward guidance is the public's forecast of the recovery. If the public believes that the economy will soon recover, then the public naturally expects a higher interest rate in the future. In that case, when the FED successfully forward guides its low interest rate policy, the consumption and investment will increase because the FED has just lowered the public's interest rate expectation. Hence, the firms and households are more likely to consume and invest more. On the other hand, if the public expects the economy to be still recovering from the recession in the future, it expects the interest rate to be lower as it is now. In that case, even the FED forward guides the economy by promising the persistence of low interest rate, the public's decision on consumption and investment isn't affected that much since its interest rate expectation isn't changed.

The working paper by Gavin et al.(December 2013) concludes following:

The stronger the expected recovery, the more households believe the future nominal interest rate will rise and the larger the stimulative effect of forward guidance on current consumption. We find that news of a −50 basis point shock to the nominal interest rate next period leads to an increase in current consumption of about 0.20 percent.

In summing up the discussion, I believe the FED's current forward guidance policy's stimulative effect is still ambiguous considering the FED's mixed signals on the economic outlook through its bond buying program tapering, which gives the market positive sign, and its reluctance to increase the interest rate even though the unemployment rate is almost at the threshold, which might worry the market. Interesting news to follow in next few months will be the FED's next change in its forward guidance program.

PS. Should the FED and Mrs. Yellen not-forward guide the public as the Chicago Bulls and Derrick Rose do?

Thought on Forward Guidance: Proposal for the Fed

The FED has been pursuing its so called "forward guidance" program hoping it could stimulate economy by convincing the persistence of low interest rate policy. It stated that it sees the current low interest rate appropriate as long as the unemployment rate remains above 6.5% and the expected inflation in one to two years is below 2.5%. According to the statement, it will consider the broader labor indicators and inflation expectations to decide how long it will continue the near zero interest rate policy once the unemployment rate drops to 6.5%. Therefore, it is very up in the air when the FED is increasing the federal funds rate.

We know that the latest report shows the unemployment rate is 6.6%.  This rate indicates that even though the monthly net number of jobs added hasn't been up to the projections for last two months, the FED will soon be deciding its future policy and writing up its well-into-future forward guidance once the unemployment rate hits 6.5%.

After all, the FED's low interest rate policy has been directed toward increasing investment. But there could be different type of "forward guidance" that could potentially create more investment as the FED wishes. My proposal to the FED is that:

a) It should forward guide the market by putting hard deadline on when it is increasing the federal funds rate and therefore the market interest rates. How this clear deadline for increase in federal funds rate works is following: If the FED successfully (!) convince the market that it will indeed push up the federal funds rate, the investors will have clear expectation of when the overall market interest rates are rising. Therefore, realizing the higher investment cost in the specific future, firms will have incentive to borrow and invest today before the FED raises the interest rate. Hence, the investment could increase as the FED has been wishing. This argument is analogical to the people's consumption when there is very high inflation expectation. If the expected inflation is very high, people would try to buy goods as soon as possible. But the one difference between these two analogies is we don't know what interest rate is very high to be analogy to the high inflation rate.

One might say that then if there is higher demand for loanable funds because of this policy, the interest rate will rise in the loanable funds market. But we have to remember, the FED has control over overall interest rate in the economy (or I believe so), it will pursue its current near zero interest rate policy until the date it forward guided comes.

b) Again, to succeed in increasing investment, the FED must be able convince the market that it is indeed increasing the federal funds rate at that certain date, To convince the market, the FED should set the date to be in near future and interest rate minimally higher in first few periods and commit to what it said.

According to latest report, the expectation of the FED's federal funds rate in June 2015 has lowered in a recent month. This might be showing that the FED's forward guidance indeed successfully convinced the market that the FED will be pursuing near zero interest rate policy. If current forward guidance is indeed somewhat successful, I believe the proposed forward guidance could be also successful.

Remember, at the time when the FED sets the specific date to increase the interest rate, the interest rate will be still zero percent, therefore there will be no negative shock to the total investment.

The problem to implement this forward guidance is that the FED cannot surely know how bad or good the economy will be performing at the time of its forward guided date. The FED could announce its first date to increase the interest rate once the unemployment rate reaches 6.5%. If the FED chooses 3 months to increase the federal funds rate after the unemployment reaches 6.5%, it can study how the investment behaved during this 3 months when the market believes the increase in the interest rate is coming. If the sign turns out to be good, the FED can further implement this "hard deadline for minimal increase in federal funds rate" forward guidance.

Change in Expected Inflation and Its Effect on Investment and Spending

Greg Mankiw explained a possible tool for the FED to stimulate the economy under zero lower bound. He says that even the FED has already lowered the federal funds rate to close to zero, the monetary policy that creates a higher expected inflation in the economy could boost the economy. Mankiw explains that if the expected inflation is increased due to the FED's policy or other reasons, the real interest rate can be lowered. According to this argument, this lower real interest rate induces more investment because of negative correlation between real interest rate and investment. In his words:

"Other economists are skeptical about the relevance of liquidity traps and believe that a central bank continues to have tools to expand the economy, even after its interest rate target hits its lower bound of zero. One possibility is that the central bank could raise inflation expectations by committing itself to future monetary expansion. Even if nominal interest rates cannot fall any further, higher expected inflation can lower real interest rates by making them negative, which would stimulate investment spending."

How I see this argument is this: since a firm expects that the overall price in the economy to increase by more than  what it expected before, the firm would invest more in new capital than it was planning to do for two reasons: first, it would try to take advantage of low price more than it was planning before. In other words, since the firm expects the general price to go higher than it expected before, it will increase its today's investment to avoid paying this higher price in the future to buy capital. It is shifting its investment from the future to today. Second, when the firm's expectation of inflation increases, it would seek to borrow more money than it planned to do because the real interest it will pay in the future decreases. In other words, they just cannot resist this lower real interest rate in the future; therefore, they will borrow money today and invest in whatever plan they could think good.

The part I don't understand in Mankiw's argument is how the change in expected inflation could affect the real interest rate today.

In his General Theory, Keynes writes:

"The expectation of a fall in the value of money stimulates investment, and hence employment generally, because it raises the schedule of the marginal efficiency of capital, i.e., the investment demand-schedule; and the expectation of a rise in the value of money is depressing, because it lowers the schedule of the marginal efficiency of capital. (p.142)

Keynes says that any possible affect of the increase in expected inflation on the investment is through the higher schedule of the marginal efficiency of capital. What I am understanding as the schedule of the marginal efficiency of capital is the firms demand for investment.

Now on the effect of higher expected inflation on consumption spending, it seems to be reasonable to expect that people would spend more today if their expectation on the general price rises. Of course, whether it is true or not depends on in what time period we are talking about the inflation expectation. If people raises their expectation of inflation in the near future, they try to adjust their spending accordingly. Also, the effect on consumption differs for durable goods and non-durable goods since the absolute change in the prices of durable goods tend to be higher than that of non-durable goods. Because of this possible effect on the spending, there could be increase in overall prices today. In other words, a higher expected inflation could cause increase in prices today. However, this possible positive relation between the change in expected inflation and spending isn't clear. In their paper in 2012, Bachmann et al concludes following: 

"We find that the impact of inflation expectations on the reported readiness to spend on durable goods is statistically insignificant and small in absolute value when compared to other variables, such as household income or expected business conditions. Moreover, it appears that higher expected price changes have an adverse impact on the reported readiness to spend. A one percent increase in expected inflation reduces the probability that households have a positive attitude towards spending by about 0.1 percentage points. At the zero lower bound this small adverse effect remains, and is, if anything, slightly stronger."

We still lack empirical study on the effect of the change in expected inflation on the spending. In my curiosity, I looked over some data on the monthly change in the expected inflation, quarterly percent change in the investment and monthly percent change in consumption spending.  From this graph, we cannot tell whether the higher expected inflation induces more investment or higher consumption spending. Of course, we need to do empirical research to claim whether it is true or not. In conclusion, I don't see or understand the stimulating effect of the higher expected inflation on the economy as Mankiw and others see it. Therefore in my opinion,  the effect of raising inflation expectation by monetary policy, which is one of the two main tools that some people suggest in today's case of zero lower bound problem, isn't clear. The other tool, quantitative easing, seems to be more effective under zero lower bound.

Reverse Repurchase Program and Its Use in American "Abenomics"

We all have been aware of the FED's latest decision to taper its bond-buying program by $10 billion from the Federal Open Market Committee (FOMC) meeting this week. Another interesting decision that came out, at least to me, was the decision to extend its reverse repurchase program (also known as reverse repo) by a year. By implementing reverse repurchase program, the FED aims to be able to control the short-term interest rate when it needs to raise it in the future. The advantage of this program is that the FED doesn't have to pull money out of the economy to raise the interest rate when it wants. This advantage of not having to lower the money supply in the future explains how this program can be implemented to achieve a shift in the FED's monetary policy. This shift is to follow permanent increase in the monetary base, which is what the Bank of Japan has been doing under Abenomics.

In the US, QE1 and QE2 and Japan's first QE during 2001-2006 were seen by the public as a temporary increase in the money supply by the central banks rather than permanent one. On the other hand, QE policy the BOJ has been employing since April 2013 is to double the money supply permanently. David Beckworth explained how the way public sees an easy monetary policy as temporary vs permanent money supply increase affects the performance of these QE programs. In his words:

"I have long argued, along with other Market Monetarists, that the Fed could solve this problem by adopting a NGDP leveltarget. Why would this help? The key reason is that it would create an expectation that some portion of the monetary base growth from the asset purchases would be permanent (and non-sterilized by IOER). That, in turn, would mean a permanently higher price level and nominal income in the future. Such knowledge would cause current investors to rebalance their portfolios away from highly liquid, low-yielding assets towards less liquid, higher yielding assets. The portfolio rebalancing, in turn, would raise asset prices, lower risk premiums, increase financial intermediation, spur more investment spending, and ultimately catalyze a robust recovery in aggregate demand."

In short, when people sees expansionary monetary policy as permanent one rather temporary, they will increase their spending today. For QE3, Beckworth explains that it has had some indication of permanent money supply growth with "its data-dependent nature and appears to have offset much of the 2013 fiscal drag" and this could be a reason

Now let's get back to the reverse repo program. By using this tool instead of targeting federal funds rate, it can convince the public that it will not lower the money base in the future to raise the interest rate. In other words, the FED will be able to make shift to a monetary policy that will sustain the higher monetary base created by QE3 permanently AND convince the public that it will be indeed permanent. This type of monetary policy or QE that raises the monetary base permanently rather than temporarily could achieve more private spending and economic growth as we can see from Japan's latest growth under Abenomics (one could argue that the other two main policies or arrows of the Abenomics also helped Japanese economy to improve). Of course, we cannot take the latest Japan's inflationary success and economic growth in 2013 as a product of the Abenomics. And the U.S. is far from implementing this kind of economic reform consisting of fiscal, monetary, and regulatory policies, but if the Abenomics turns out to be Japan's success story in the future, the U.S. should study this "real life experiment" of Japan. If it chooses to do the experiment on itself, the reverse repo program is their experiment tool.