2019 年 49 巻 1 号 p. 45-57
The paper examines the concept of equilibrium and stability in macrodynamics by means of the monetary base of the central bank. In much of the literature, the mcrodynamic model adopts some version of the Taylor interest rate monetary policy rule by the central bank. This means that the growth rate of the monetary base becomes implicitly endogenous variable in the model.
Japanese economy fell into the serious deflationary depression after 1997. The United States economy experienced the problems of subprime mortgages since housing prices started declining in 2006. In both countries, the central banks decreased the interest rates under their control. Over time, however, the interest rates that are directly controlled by the central banks were close to zero and it could not decline further. The monetary policy had run into the sharp limit.
The central bank has two effective monetary policies in the ‘liquidity trap’ situation. First the central bank buys bonds unlimitedly in the bonds market by means of open market operations. Second it is inflation targeting, the central bank chooses and announces an inflation target to the public. Thus, the paper shows significantly some analytical results on the local stability/instability of the equilibrium point in the dynamic Keynesian model by means of the monetary base rule, together with the target of the growth rate of nominal GDP, instead of the interest rate rule.
In conclusion, the quick response of the monetary authority to the macroeconomic conditions or high credibility of the monetary authority’s announcement on inflation targeting is a stabilizing factor of the macroeconomic system. To the contrary, the negative monetary policy is a destabilizing factor, if its credibility is sufficiently low and the nominal interest rate is near to a lower bound （liquidity trap）.
The latter part of the paper mentions the performance of the Japanese economy from the interpretation of the above theoretical result.
JEL Classifications:E52, E61, E62