| Abstract: |
Temin [1989] and Eichengreen [1992] argue that monetary policy played a key
role in each country's economic performance during the Great Depression, and
that some European policymakers hesitated to pursue an expansionary monetary
policy even after departing from gold. Why did these policymakers not pursue
the opportunities they were able to pursue to the fullest extent? This study
explores this issue by looking at the case of Japan, focusing on the
constraints it faced and the remedies available to it as a small, open
economy. This study explores the relationship between interest rates in Japan
and in the major international financial centers, using a new series of
representative long-term interest rates and narratives. This study reveals
that Japan imposed a restrictive monetary policy on itself even after
departing from the gold standard. Japan did so because it needed to maintain
its ties both with its trading partners and with the international financial
markets. |