operations became lengthened. in the final stage of the quantitative easing policy, the average maturities exceeded six months, and the longest one reached eleven months. in addition, an experimental policy measure of commitment to the future course of monetary policy was first introduced by the boj. under the quantitative easing policy, for example, the boj made a commitment to continuing with the quantitative easing policy “ until core cpi inflation becomes stably zero or above. ” the boj also adopted “ credit easing ” in the current terminology. the assets purchased included asset - backed securities ( abss ) and asset - backed commercial papers ( abcps ). the boj purchased stocks held by financial institutions to reduce market risk associated with stockholdings, which was one of the biggest risk factors in potentially destabilizing the financial system. as i have reviewed so far, the boj introduced various unprecedented measures under the uncharted circumstances during the period from the late 1990s to the early 2000s. innovative aspects of such policy measures were not well recognized at that time, but, in retrospect, such measures involved most of the elements in the unconventional policy measures taken in the recent global financial crisis. for example, posen ( 2010 ) noted that japanese deflation remained stable over the course of the 1990s rather than accelerated. for the overview of empirical studies on the effects of the boj ’ s monetary policy measures in the 2000s, including the quantitative easing policy, see ugai ( 2007 ). iii. four similarities in economic conditions and policy responses after the burst of a bubble based on the facts in japan ’ s experience after the burst of a bubble, i will next point out four observations that are common to economic conditions and policy responses after the burst of a bubble in the two cases : one is the u. s. and european economies in the recent crisis and the other is the japanese economy since the 1990s. i will also elaborate on their implications in analyzing economic conditions and monetary policy after the burst of a bubble. sluggish economic recovery and balance - sheet adjustment the first similarity concerns the fact that it took fairly long before restoring the full - fledged recovery path after the burst of a bubble. 14 in japan, it was 2003 when the economy went back to the steady recovery path, and it thus took more than ten years since the burst of a bubble. in the u. s. and european economies, the adjustment is still continuing, and the duration of the adjustment period is yet to be confirmed.

a very relevant factor in the psychological problem is the traders'expectations as to the intentions of the authority which fixes rates. " in other words, hawtrey highlighted that private entities decide their actions based on expectations for the future, identifying - at this extremely early stage in the study of economics - - that the central bank's policy stance toward future price stability is an important factor working on the expectations of such economic entities. hawtrey also provides us with instructive insights about why interest rate control by the central bank produces significant policy effects ( chart 3 ). in his 1938 book a century of bank rate, he argues that " [ t ] he pressure applied to traders by a moderate rise in the short - term rate of interest, say, 1 percent, is undeniably very slight. yet apparently the bank of england always counted on a rise of 1 percent or even of 0. 5 percent having a noticeable effect. " he continues by stating that, when the bank of england raises the official discount rate by 1 percent, " a trader would reason that this was intended to have a restrictive effect on markets, and that, if the effect was not brought about, the rate would simply go higher and higher till it was. " hawtrey thus probably was the first to clearly point out that the reason why a minor change in the policy interest rate creates a major policy effect is people's expectations regarding the future monetary policy stance of the central bank. i vividly remember hearing about this last point from professor john richard hicks during my days at oxford. however, while hawtrey called this policy effect resulting from people anticipating the intentions of the central bank the " psychological effect, " hicks argued that the effect was based on extremely rational behavior of economic entities ( chart 4 ). from a theoretical perspective, hicks found this to be a stronger argument with regard to the transmission mechanism of monetary policy than hawtrey's argument. hicks called this the central bank's " announcement effect, " saying that the central bank's policy " should almost immediately result in a shift in expectations, " and that " [ w ] hat i learn from hawtrey's analysis is that the'classical'bank rate system was strong, or could be strong, in its announcement effects. " this identification of the announcement effect by hicks is based on the so - called expectations theory with regard to long - term interest rates. he therefore can be said to have pointed out at an early