Fixed exchange rates limit the degrees of freedom for policymakers. The breakdown of Bretton Woods in 1971 removed this constraint on official action, and the results were larger budget deficit and higher inflation. The zero bound on interest rates also posed a constraint on behavior. Until this year, despite the long struggle against deflation, the Bank of Japan never instituted a negative policy rate. Since the early days of the Great Financial Crisis, some had warned of limits of monetary policy. Many investors, analysts, and... READ MORE
