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.
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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.