Policy Innovation in the Great Depression

Crises bring policy innovations. Facing unprecedented situations, policymakers have worked hard to find solutions and still do so today. Takahashi has often been referred to as one of the world’s best policy innovators during the Great Depression of the 1930s. Which part of his policy was innovative? Was that really his work? To answer these questions, I revisit his policies focusing on policy innovation. First, I go through his exchange rate policy with reference to the departure from the gold standard. Second, I explore his fiscal policy focusing on debt-financed fiscal expansion. Third, I dig into the conduct of monetary policy focusing on open market operations. The appendix to this chapter explores the monetary policy operation based on the recently compiled government bond yield term structure data.