ABSTRACT
Koo (2008, p. 73) explains that the Bank of Japan pumped ¥25 trillion of reserves into the system between March 2001 and March 2006. Money pumping might not necessarily be the most accurate description of what QE actually is about. Figure 13.1 shows the evolution of base money, broad money and bank loans throughout the QE experiment in Japan. It is obvious that the increase in base money during that period did not translate into an expansion of bank lending and, by extension, of broad
money. Koo (ibid., p. 75) explains this apparent paradox by stressing the reluctance of borrowers to go into debt.2 Koo seems to endorse the postKeynesian tenet of endogenous money when he argues that, in the absence of willing borrowers, the injection of central bank money is deemed to be a failure. It is way more accurate to refer to expansions in excess reserve balances during the QE phase.3 This view is also shared by Ryan-Collins et al. (2012, pp. 80-81).
