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


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.

JEL Classification: E42, N15

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