An effective formula of combining monetary and fiscal policies means Japan is in a better position to benefit from quantitative easing(QE)compared to the U.S., Joseph Stiglitz, Nobel Laureate and professor of economics at Columbia University told CNBC.
The new Bank of Japan Governor Haruhiko Kuroda shocked investors worldwide on Thursday by announcing an even broader stimulus program than they had hoped for. He committed to double the bank's government bond holdings in two years, adopt a new balance sheet target and combine two bond-buying schemes to allow it to buy government bonds of all maturities.
Kuroda has followed a similar path to the U.S. Federal Reserve Chairman Ben Bernanke, but Stiglitz believes the BOJ governor will be more successful.
"The U.S. has not been doing very well. One of the reasons that quantitative easing has not had the hoped-for benefits is that we have not fully addressed the problems in our financial sector. In other words, the arteries are clogged," said Stiglitz.
"What is interesting about Kuroda's move is it is part of a broader agenda. They are not going alone. They are using monetary policy, in addition to fiscal policy, and what the PM calls the growth strategy and some of us call a structural policy, and it is those three together that are likely to be effective," added Stiglitz.
(Read More: BOJ Throws In Kitchen Sink in War With Deflation)
Kuroda's turnaround of BOJ policy comes hand in hand with Prime Minister Shinzo Abe's pledge to revive the economy through structural reform. In January Abe pledged to spend 10.3 trillion yen ($117 billion) to generate 2 percentage points of GDP growth and create 600,000 jobs. It is this combination of monetary and fiscal policy that will make Kuroda trump Bernanke, according to Stiglitz.
"In Japan, one of the reasons things went badly for so long is because their financial system was not working very well," he said. "They have gone a bit further along in repairing their financial system. So one reason I'm a little bit more hopeful it will have a bigger effect is that. The other reason is that it's being accompanied by stronger fiscal action... The U.S. [in contrast] is basically in a contractionary mode," he said.
Fed Chairman Bernanke has attempted to prop up the U.S. economy via three rounds of extensive QE since the end of 2008.
After contracting in 2009, U.S. GDP has recovered to average yearly growth of around 2 percent per year, still well below average yearly rises of 4 percent seen in the 1990s. But recent economic data have pointed to a continued struggle to revive growth. Latest Labor Department data show a patchy recovery in unemployment, with 12 states seeing an increase in unemployment rates.
(Read More: Not-So-Great News for Jobless Claims and GDP)
Stiglitz argues Bernanke's policies have not worked because the flow of new money has not been distributed evenly in the economy, putting home owners and small businesses at a disadvantage.
"We had hoped that when we lowered the long term interest rates it would lead to large numbers of home owners re-financing their homes. It led to some, but we have a whole set of problems in the mortgage market that we have not really fixed," he said.
"Similarly, small and medium sized enterprises [SMEs] are still having difficulty getting finance, partly because the SME banks that are source of a lot of their funds are not in very good shape. We put all that money into the big banks but didn't pay attention to the smaller banks which are the core of SME lending.... so in U.S. we did not fix our financial sector," he added.
Kuroda's announcement Thursday drove a strong surge on the Nikkei 225, taking the index to fresh highs not seen since before the financial crisis in 2008. Meanwhile the yen has weakened around 4 percent against the dollar since the announcement.
"I'm actually quite hopeful, there is a new Prime Minister and he has good understanding of what needs to be done," said Stiglitz.