the other hand, because central banks confront a constantly changing world, in practice, they often face difficulties that cannot be explained by existing theories. when the bank introduced large - scale jgb purchases and yield curve control, it took the limitations and issues suggested by theory into account, carefully investigated the merits and demerits of addressing those issues, and arrived at the current policy framework. i believe that such new steps in practice eventually will lead to new theoretical developments in the future. although there remain issues to be resolved to achieve the price stability target of 2 percent, the environment surrounding prices in japan has improved steadily compared to five years ago. i am convinced that this shows that the bank's efforts based on the economic theories underpinning qqe have been going in the right direction. going forward, with the output gap improving steadily, firms'stance is likely to gradually shift toward raising wages and prices. if further price rises come to be widespread, inflation expectations are likely to rise steadily. the bank will continue to persist with powerful monetary easing to ensure that such positive developments are not cut short. thank you for your attention. kurt lewin, " the research center for group dynamics at massachusetts institute of technology, " sociometry, vol. 8, no. 2 ( 1945 ) : 126 - 136. quantitative and qualitative monetary easing and economic theory speech at the university of zurich in switzerland november 13, 2017 haruhiko kuroda governor of the bank of japan chart 1 consumer prices and policy interest rates % cpi ( all items less fresh food ) policy interest rates - 1 - 2 - 3 cy 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 notes : 1. the cpi figures ( y / y % chg. ) are adjusted for changes in the consumption tax rate. 2. for the period when no target interest rate was adopted, figures for the policy rate are the interest rate applied on excess reserves. sources : ministry of internal affairs and communications ; bank of japan. chart 2 potential growth rate y / y % chg. total factor productivity capital input labor input potential growth rate - 1 - 2 fy 85 note : based on boj staff estimations. figures for the first half of fiscal 2017 are those for 2017 / q2. source : bank of japan. chart 3 monetary policy responses and developments in real gdp after the global financial crisis real gdp

in many countries, and is widely employed in policies such as inflation targeting. 4 recent years have also seen vigorous research on the mechanism that central banks - - even when facing the zero lower bound - - can " borrow " easing effects from the future by committing themselves to continuing with monetary easing even if economic activity and prices improve going forward. in 1998, professor krugman argued that, in order for japan to overcome deflation, it was necessary to substantially increase the money supply and make real interest rates sufficiently negative by raising inflation expectations. in 2003, professor woodford and professor eggertsson - - who was an imf economist at the time - - argued that, in order to overcome deflation at the zero lower bound, the management of the expectations of private entities was important and that, for this purpose, a commitment to keeping future monetary policy sufficiently accommodative was indispensable. 5 on the other hand, in the world of practice, the bank of japan has been a pioneer of such forward guidance. when it introduced the zero interest rate policy in 1999, the bank explicitly committed to continuing with the zero interest rate policy " until deflationary concern is dispelled. " i regard this as the first application of forward guidance in practice worldwide. moreover, in the period of qe from 2001 to 2006, the bank committed to continuing with qe " until the annual rate of change in the cpi registers zero percent or above in a stable manner. " however, these policies were insufficient to overcome deflation. one of the reasons likely is that the natural rate of interest had declined more than expected, but it is probably also the case that the commitment at the time was somewhat ambiguous and the target inflation rate was too low, so that the policies were insufficient to raise inflation expectations. haruhiko kuroda, " the role of expectations in monetary policy : evolution of theories and the bank of japan's experience, " speech at the university of oxford, june 8, 2017. gauti b. eggertsson and michael woodford, " the zero bound on interest rates and optimal monetary policy, " brookings papers on economic activity, no. 1 ( 2003 ) : 139 - 211. when it introduced qqe in 2013, the bank - - in order to properly lift inflation expectations, and keeping latest economic theory fully in mind - - made sure to make a strong and clear commitment that it would achieve the 2 percent price stability target in a responsible