Japanese Tales in the Mythology of Fed Quantitative Easing

Abstract

The power of narratives is strong in the teaching of monetary economics as in many other areas of learning. We should realize that many of these powerful stories which the teacher uses to demonstrate difficult hypotheses derive from folklore rather than fact. In particular, neo-Keynesian economists, including the architects of the Obama Great Monetary Experiment (Fed QE), have justified their prescriptions on stories of what went wrong during the Great Depression in the US or during the “lost decade” and beyond in Japan. In this chapter, we take aim at their Japan narrative and seek to replace it with one which yields quite different lessons from those which they have taught.