should reflect credit risks of borrower financial institutions, lower to 0. 001 percent under the quantitative easing. in addition, the commitment to continue zero interest rates substantially flattened the yield curve. the strong effects of the quantitative easing policy on financial markets are very clear if we compare them with the u. s. situation in the 1930s. during the 1930s, although the u. s. treasury bill rate declined to approximately zero percent, the federal funds rate, the rate at which financial institutions lend and borrow short - term funds, declined only to 0. 25 percent. moreover, the yields on government bonds have been much lower in japan from the mid - 1990s onward than they were in the united states of the 1930s. thus, we can infer that the quantitative easing policy was one of the most decisive policy challenges for central banks from a historical perspective. in retrospect, japan's economy finally started recovering in january 2002 after the strenuous efforts by firms and banks to resolve their problems that i have mentioned. as an aside, it was on march 20, 2003 that i assumed the office of governor. at that time, the fact that japan's economy had already started recovering was beyond my widest dreams. in my inaugural address, i mentioned that japan's economy was still on shaky ground. subsequently, the bank stepped up the quantitative easing further by increasing the current account balances at the bank far above the required reserves, as well as abiding by the cpi commitment. also, in october 2003, the bank provided a more detailed description of the commitment to maintain the quantitative easing policy from the perspective of enhancing the transparency of monetary policy. during this, we always kept in mind that we should carefully nurture the budding economic recovery. the quantitative easing policy showed visible effects on two fronts. first, the policy, particularly through the ample liquidity provision, stabilized the financial system, at a time when there were strong concerns over its stability. the ample liquidity the bank supplied met the surges in financial institutions'liquidity demand, and thus successfully avoided a repetition of the large - scale credit crunch that was observed in 1997 and 1998. second, the quantitative easing policy created and maintained a very accommodative environment that supported the recovery of japanese firms, through the commitment to continue zero interest rates. in particular, bank lending rates and interest rates on corporate bonds continued to decline as a result of the flattening of the yield curve, as well as the gradual

, 11, and 12, 2018. although the rate has not yet reached 2 percent. in my speech today, i would like to focus on how monetary easing has lifted productivity and, in a broader sense, has brought out people's potential in japan. improvement in productivity since the bold monetary easing policy was launched, productivity has been improving. this seems to conflict with standard textbook economic theory, which suggests that while monetary policy can influence real variables such as real gdp, production, and employment in the short run, in the long run it can only affect nominal variables such as nominal gdp, prices, and the exchange rate. 2 so, why did japan's productivity rise as a result of monetary policy even though this seems to run counter to economic theory? the reason generally given is that what economic theory actually focuses on is differences in productivity levels arising due to differences in productivity growth rates over the super long term. looking at real purchasing power parity gdp per capita, which provides a broad indicator of differences in productivity across countries, the level between the poorest and richest countries may differ by a factor of more than 100. of course, such a gap is not due to differences in monetary policy. returning to the situation in japan, however, if monetary policy had been well implemented, productivity might have grown, over a period of a decade or more, at 2 percent rather than 1 percent. therefore, i would say one reason, first of all, is that in the short run capacity utilization rises. in times of recession, orders fall and factories will decrease output. however, since labor cannot simply be laid off, labor productivity will decline. the opposite occurs during an economic expansion. for details, see nicholas g. mankiw, mankyu keizaigaku ii makuro - hen, 3rd ed., trans. adachi hideyuki, ishikawa jota, ogawa eiji, jinushi toshiki, chuma hiroyuki, and yanagawa takashi ( tokyo : toyo keizai inc., 2014 ), 374, 397. originally published as principles of economics, 6th ed. ( mason, ohio : south - western cengage learning, 2012 ), 650, 665. according to mankiw, in the long run, changes in the amount of money have important effects on nominal variables such as price levels, but only negligible effects on real variables such as real gdp. he adds that, although monetary policy