Unconventional Monetary Policy and the Abolition of the Liquidity Trap Hypothesis of Keynes - A Case Study of Japan and the United States of America –

Abstract

This study aims to highlight the effectiveness of non-traditional monetary policy tools in addressing the economic recession left by the global financial crisis of 2008, as well as the recession resulting from the Corona pandemic, and to eliminate the hypothesis of Keynes' liquidity trap, which until recently was a fact and a firm belief. The most important tools of unconventional monetary policy have been introduced: quantitative easing, advance interest rate guidance, negative interest rates, and interest on reserves. The effectiveness of the measures taken in Japan and the United States of America in reducing the economic recession was also analyzed. The study reached a set of results, the most important of which are: the effectiveness of monetary policy in reviving the economy in both the United States of America and Japan, and the abolition of Keynes's hypothesis about the liquidity trap. A set of conditions must be met for the success of unconventional monetary policy, the most important of which is the development of the system, financial markets and the banking system, in addition to the flexibility of the productive system.