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

Keiichiro Kobayashi

International Journal of Economic Policy Studies, 2019, vol. 13, issue 2, No 7, 383-388

Abstract: 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.

Keywords: Monetary easing; Velocity of money; Deflation; Intergenerational rationality (search for similar items in EconPapers)
JEL-codes: E30 E40 E50 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s42495-019-00019-9

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