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A Myth of "the Keynesian before Keynes:" Low Interest Rate Policy in the Early 1930s in Japan

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  • Masato Shizume

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

Departing from the gold standard was the necessary condition for early recovery from the Great Depression in 1930s (Eichengreen and Sachs[1985]). Then, was it the sufficient condition for an independent monetary policy? I explore Japan's monetary policy during the interwar period, focusing on the macroeconomic policy innovation in the early 1930s. I explore the view of the Japanese policymakers at that time, making use of newly available archives from the Bank of Japan. I derive a new series of representative long-term interest rate data from the market price of one particular government bond. Then, I explore the relationship between long-term interest rates of Japan and the two financial centers, Great Britain and the United States. The Japanese experience shows how strong the Golden Fetters were during the post-gold-standard era. The institution of the gold standard had an enduring influence on Japanese policymakers, even after its constraints were no longer formally binding.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp191.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 191.

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Length: 41 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:kob:dpaper:191

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