Which Was More Important During the Showa Depression: Fiscal Policy or Monetary Policy?(in Japanese)

Many studies agree that the Great Depression in the 1930s was caused by deflationary monetary policy, but few empirical studies have been conducted on the Showa Depression in Japan. Among them, some argue that fiscal policy is effective in stimulating the economy, but others do not. And, most studies show that monetary policy might affect price, but not production. Why are different results are derived in Japanese studies? This study tries to answer that question. After briefly introducing fiscal and monetary policies during the Show Depression, and surveying past empirical studies, we analyze the era by VAR models using five variables (monthly data): production, money, call rate, price, and fiscal variable. The empirical results are summarized as follows. First, fiscal policy did not affect production. Second, price and money (M2) affected production. Third, money affected price. These results are similar to those of empirical studies on the Great Depression. It seems that the results are gained by selecting variables more carefully, and by processing data more rigorously.