##ated in the golden arches theory propounded in 1996 by columnist thomas friedman, who noted that no two countries would go to war with one another if both had mcdonald ’ s franchises. but the golden arches theory was debunked a mere three years later when nato began bombing serbia, where mcdonald ’ s had opened in 1988. i went to the us to study for my doctoral degree in 1995, when optimism was at its high - water mark and the reigning belief was that we economists could solve the problems of the world with the help of the invisible hand. many people probably have difficulty envisioning economists as idealists, given that the field is well known as the dismal science and has often been criticised for callousness and materialism. but speaking for my own generation studying economics in the nineties – we were idealistic. in my phd programme, i was joined by people from all over the world who had great hopes for free trade and sensible economic policy, and what the two could do for their own countries and for the world at large. and yes, the invisible hand has performed many miracles since then. prosperity has grown by leaps and bounds worldwide. in the past 30 years, 1. 2 billion people have risen out of abject poverty. to be more specific, in 1990 some 36 % of the world ’ s population lived on the equivalent of less than two us dollars a day. now only 9 % are that destitute. in the west, globalisation has also been a key to improved living standards and price stability over the past 30 years, with the continuous emergence of new ways to make production cheaper and more efficient by moving it between countries. it also created innumerable international opportunities for well - educated people. but there is a dark side to this upbeat picture. although globalisation narrowed the gap between rich and poor countries, it widened the income gap within many countries. although the overall outcome has been profit, the benefits have been distributed unequally, and some groups in society lose out. income inequality has therefore grown in most western countries in recent years. this in turn has given rise to political instability and social unrest, particularly in countries with poorly developed welfare systems or limited will to distribute the benefits throughout society. so it is apparent that globalisation cannot guarantee world peace. free trade does not always beget political reform, nor are all countries ready to adopt western ideas on freedom and human rights – even if they open the doors to international trade. in

but also at the long end. subsequently, the pace of monetary expansion was accelerated in october 2014 both in quantitative and qualitative terms and, in january this year, the policy was augmented in a third dimension by adding an interest rate dimension to the quantitative and qualitative dimensions through the introduction of “ qqe with a negative interest rate ” ( chart 2 ). the introduction of a negative interest rate aims to exert further downward pressure on the entire yield curve by lowering the short end of the yield curve, coupled with massive purchases of jgbs. this could be called “ enhanced qqe ” in that it is an extension of previous qqe policies and further enhances their effects. with regard to massive purchases of jgbs, the bank initially conducted purchases such that the amount outstanding of jgbs held by the bank would increase at an annual pace of about 50 trillion yen, and in october 2014 this was accelerated to today ’ s pace of about 80 trillion yen. since japan ’ s nominal gdp is about 500 trillion yen, an annual increase of 80 trillion yen corresponds to about 16 percent of gdp ( chart 3 ). as a result of such purchases, the bis central bankers ’ speeches bank of japan ’ s balance sheet relative to nominal gdp increased from about 35 percent at end - march 2013 to about 81 percent at end - march this year and will continue to rise. for comparison, following the three rounds of large - scale asset purchases ( lsaps ) in the united states, which now have ended, the federal reserve ’ s balance sheet at end - march this year was equivalent to 25 percent of nominal gdp. i think this shows you just how massive the monetary easing conducted by the bank of japan is. ii. the costs of deflation as mentioned, the aim of qqe is to overcome the prolonged deflation that has gripped japan. even if this deflation has been mild, the fact that it has continued for more than 15 years means that its cumulative costs have been extremely large. looked at in terms of the price level, an annual inflation rate of minus 0. 3 percent over a period of 15 years implies that the price level will fall by around 5 percent, but an annual inflation rate of 2 percent over a period of 15 years means that the price level will rise by around 35 percent. therefore, i think it is clear that even mild deflation, if it continues for a prolonged period, will have a large impact on the medium