Differences in Unconventional Monetary Policy of Both the Federal Reserve Board and the Bank of Japan

Abstract

This article consists of two dimensions. First, to draw the historically penetrating nature of money-supply, monetary policy, and central banks, to clarify what “conventional” monetary policy is. Conventional monetary policy doesn’t mean the direct control of the base money, but the monetary policy by operating short term interest rate. Therefore, money supply is regulated endogenously. I point out here that we can find in Capital by Karl Marx some basic conceptions required to consider the definition of conventional monetary policy. Second, to define “unconventional policy.” Unconventional monetary policy is the policy which directly controls the amount of base money (simply applying quantitative monetary theory). It is the Bank of Japan (BOJ)’s unconventional monetary policy. However, the Federal Reserve Board (Fed)’s is not the case. The Fed tried to influence the market movement or business cycle by the control of monetary means exclusive of interest rate. Amounts of base money was not the target, but its result. Therefore, I could conclude that the Fed remained in the framework of conventional monetary policy, even though its policy looked like an “unconventional” and “quantitative” one. It is the reason why the Fed could adopt an “exit strategy” flexibly. However, the BOJ has fallen into “monetization” without an “exit strategy” so far.