I. Introduction
Japan's monetary policy has been consistently accommodative over the past three decades. However, especially in times of global economic shocks, there have been cases when the intended policy effect did not materialize due to differences with macroeconomic policies in other countries. In what follows, we look back at the spillover effects of monetary policies abroad and implications for the conduct of monetary policy in Japan.
II. Relationship between Money Demand and Supply and Economic Activity
Monetary policy is carried out by central banks in order to affect the real economy through private financial institutions as well as financial and capital markets.
In general, monetary policy is effective when the following conditions hold:
(1) The relationship between the monetary base and the money stock is stable (i.e., the money multiplier is stable).