This Bloomberg story says the G7 countries’ central banks intervened to weaken Japan’s currency. But what exactly did they do? If the BOJ wants to make the yen fall against the dollar, euro, etc., why doesn’t the BOJ just print more yen and buy more dollars, euros, etc.? I don’t understand what the other G7 banks had to do. If anything, to make it more effective, the BOJ should have told them, “You guys stay out of the currency markets, we are going to start buying your stuff and we don’t want you offsetting our actions.”
More generally, I have been trying to get the death-blow to Scott Sumner’s worldview by looking at economies following natural disasters. I had thought that they would show a drop in nominal GDP, and then I could say, “Aha! So using Sumner’s tools, he would look at these places and conclude that they needed to print more money, since it clearly wasn’t a structural supply-side problem.”
The only flaw in my brilliant plan was that (apparently) the nominal GDP of Haiti went way up after the earthquake, and even the Gross State Product of Louisiana went up after Katrina. So either I’m totally wrong in my intuition–thinking that real output drops so much following a major natural disaster, that even nominal GDP falls–or the influx of charity and the flaws in GDP accounting are masking my brilliance.
Anyway, I would love to see a Scott Sumner prediction on what happens with Japanese nominal/real GDP…