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Gee Willikers! All you need are some new Central Bank tools.



This is a reprint of a comment responding to Chairman Bernanke’s calls for greater fiscal monetary coordination. It solves the issue:



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_____CENTRAL_BANK_DIVIDENDS_____

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This is a good article. I like Chairman Bernanke’s call for greater fiscal monetary coordination.



It may be that the calls for this coordination indirectly identify a systemic deficiency in the traditional demarcation of monetary and fiscal responsibilities.



The traditional demarcation can be summarized as the bank will provide the money but the government will raise and spend it however it sees fit.



In normal times, when things are going reasonably well and there are no significant problems, these demarcations have been shown to work well.



When significant structural problems present themselves that, for whatever reason, cannot be addressed by these demarcations, it may be time to blur the demarcations.



For example: Japan may be suffering from secular stagnation brought upon by low productivity growth, an increasingly aged populace and a high savings rate.



Might it not be legitimate for the Central Bank to be interested in a policy that could increase the birth rate and by extension, in the long term, boost the productivity rate as youthful vigour filled the schools and workplaces?



Such a policy is normally in the realm of fiscal policy and the Central Bank lacks the tools to effect such change.



However, the Central Bank could build such a tool and defend its implementation by noting the special economic circumstances. If they were inclined to build such a tool, I would suggest they consider Central Bank Dividends.



A Central Bank Dividend is a sum of money from the Central Bank made available to national or subnational entities and constrained to a particular use.



The constraint overlaps fiscal responsibilities by pointing the money toward a particular use.



If the Central Bank wanted to generously boost the Japanese birth rate to the point of a full scale baby boom, it would only have to promise a generous sum to each married citizen that produced a child.



This may seem like an exotic helicopter drop but it is not. The constraint forces a particular economic activity and it is truly a dividend being paid out to reward the successful diminishing of inflation and interest rates - which are both a problem and a success.



This crude implementation of a Central Bank Dividend would boost the birth rate, over time raise productivity, boost consumption because children are expensive, increase inflation and interest rates and essentially address all of the ills described in Chairman Bernanke’s Reflections on Japanese Monetary Policy.



Such tools bring the Central Bank into the realm of social engineering which, in the future, during extraordinary low inflation low interest circumstances, may well be a realm that is considered orthodox monetary policy.



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https://www.brookings.edu/blog/ben-bernanke/2017/05/23/some-reflections-on-japanese-monetary-policy/

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