Recent unorthodox monetary policies vs. orthodox theory of monetary policy: comments and views on Jordan

  • Naotsugu HayashiEmail author


This article investigates and examines theoretically and empirically the mechanisms and effects of so-called non-traditional or unorthodox monetary policies, such as quantitative monetary easing, zero interest rate policy (ZIR), and negative interest rate policy (NIR), implemented in response to the recent deflationary recession, and especially after the global financial crisis (GFC) in Japan and the United States, in discussing Jordan (Issues and challenges of monetary and fiscal policies caused by quantity easing by Central Banks, 2018), (Int J Econ Policy Stud 13, 2019). According to Friedman and Schwartz’s (Monetary history of the United States, 1867–1960, 1963) original definition, high-powered money (HPM), or monetary base (MB), comprises cash currency (CC) plus required reserves (RR) that can have the power of credit creation. However, the current Federal Reserve System (Fed) and the Bank of Japan (BOJ) have added interest-paid excess reserves (ER), which have no power of credit creation, to MB. Therefore, since ER which paid interest from October 2008 sharply increased, and as a result, MB (which includes ER) increased sharply, the Fed and the BOJ mistook this as bold quantitative monetary easing, and were overconfident of being able to easily achieve the 2% inflation target, although CC and RR increased only slightly. However, in fact, neither the 2% inflation target nor an increase in the real economic growth rate were achieved. This paper examines theoretically and empirically why they failed to achieve the 2% inflation target, and why they failed to raise the real growth rate, in spite of bold monetary easing, flexible fiscal policy, and growth strategies. We conclude that, to achieve stable growth, an appropriate, rule-based, stable monetary policy is necessary.


Quantitative monetary easing policy Zero interest rate policy Negative interest rate policy Interest payment on excess reserves Definition of monetary base 

JEL Classification

E3 E4 E5 



The author gratefully acknowledges valuable discussions on the original version of this paper by Professor J.L. Jordan, and helpful comments from Professor P. Collins and an anonymous referee.


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Copyright information

© Japan Economic Policy Association (JEPA) 2019

Authors and Affiliations

  1. 1.Hosei UniversityTokyoJapan

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