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Why deflation continues under extraordinary monetary expansion? Comments and views on Shimizu

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  • Keiichiro Kobayashi

    (Keio University)

Abstract

Professor Shimizu’s policy proposal is quite reasonable, given that the changes in the velocity of money are exogenous and stable. Observing the monetary policy in Japan for the last three decades, we have a question whether the velocity is exogenous or endogenous. If the velocity decreases endogenously in response to an additional monetary easing, it may be difficult to escape from deflation. We propose a theoretical argument of a new rational expectations’ equilibrium hypothesis in the intergenerational economy, where each generation is intergenerationaly altruistic and rational. The intergenerationaly rational expectations’ equilibrium implies that deflation can continue under an extreme increase in money supply.

Suggested Citation

  • Keiichiro Kobayashi, 2019. "Why deflation continues under extraordinary monetary expansion? Comments and views on Shimizu," International Journal of Economic Policy Studies, Springer, vol. 13(2), pages 383-388, August.
    • Handle: RePEc:spr:ijoeps:v:13:y:2019:i:2:d:10.1007_s42495-019-00019-9
    DOI: 10.1007/s42495-019-00019-9
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    References listed on IDEAS

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    1. Alan J. Auerbach & Maurice Obstfeld, 2005. "The Case for Open-Market Purchases in a Liquidity Trap," American Economic Review, American Economic Association, vol. 95(1), pages 110-137, March.
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    Cited by:

    1. Naotsugu Hayashi, 2021. "Preface to the special feature on recent monetary policy 2," International Journal of Economic Policy Studies, Springer, vol. 15(1), pages 1-3, February.

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    More about this item

    Keywords

    Monetary easing; Velocity of money; Deflation; Intergenerational rationality;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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