Mainstream economists felt that they could give themselves a pat on the back now that capitalist economies have reached the Great Moderation － economies that were hit by the global financial crisis in 2008, and then fell into the Great Recession. Many countries became dependent on an unconventional monetary policy. The negative interest rate policy (NIRP) that was seen as a trump card of this unconventional monetary policy was adopted by the Nordic countries, the European Central Bank in 2014 and the Bank of Japan in 2016. We will discuss the relationship between the controversy over the liquidity trap and NIRP and clarify that the NIRP puts pressure on banks’ profits, which leads to a decline in financial intermediation function and instability in the financial system.
