I was VERY upset when Kocherlakota resigned his position as the President of the Minneapolis Federal Reserve branch
Its not that I always agreed with his views and so forth, it was just that I had finally got to a stage where I could spell his name correctly first time, and then he up and resigns!
Now that he is a free agent he has a blog, and I am huge fan
This is from him on the Bank of Japan (in summary and bolding mine):
Negative nominal interest rates give a central bank more policy space
This space will be of little use unless negative nominal interest rates are deployed in conjunction with the right central bank communication.
Here's the wrong way to communicate: keep saying that negative is a purely emergency setting that will be abandoned shortly. The impact of policy depends on the expected path of interest rates over the medium and longer term. The central bank's communication means that its expanded policy space will have little influence on those medium and longer term expectations.
Note that even if the central bank actually keeps rates negative for many years, this ongoing communication will systematically rob the policy of its effectiveness (as well as hurting central bank credibility).
Here's the right way to communicate: keep saying that all available tools, including negative interest rates, will be used as is needed to return employment and inflation to desirable levels as rapidly as possible. This communication means that the public and markets know that the new policy space can be used to buffer the economy against any adverse shock.
Up until the day of the new BOJ policy Kuroda's public pronouncements on the use of negative interest rates were, in short: No.
Not to mention his insistence that all was on track and nothing further was coming at this stage.
Yes, he likes to surprise markets. Cute. I understand. But the surprise wasted a lot of bullets in the lead up.
