Greenspan Largely Followed the So-Called “Blinder Doctrine”; the Bank of Japan under Governor Sumita also Followed the Advice of Friedman and Schwarz and Ignored the Bubbles

In the late 1990s, the Federal Reserve under Chairman Greenspan largely followed the advice of Friedman and Schwarz, reformulated in the so-called ‘Blinder doctrine’ (ignore the bubble; but when it bursts follow a policy of aggressive ease as needed to avoid financial crisis). Some critics argue, indeed, that the Greenspan Federal Reserve made the opposite error to the Federal Reserve of the late 1920s. Whilst Alan Greenspan warned of irrational exuberance at the beginning of the boom, by the end he and his colleagues had become cheer-leaders for the new economy. In the late 1980s, the Bank of Japan under Governor Sumita also followed the advice of Friedman and Schwarz and ignored the bubbles in the land and equity markets (tolerance stemmed in part from concern at the huge rise of the yen since the Plaza Accord and the damage that this might inflict on the Japanese economy). Unlike Alan Greenspan, Governor Sumita did not engage in any substantial commentary to either restrain or justify the exuberance at large. Some window guidance was given to banks with respect to reining back their lending to the property sector, but this was largely circumvented by routing loans via financial subsidiaries. The Bank (operating in conjunction with the Ministry of Finance, which at that time still had a voice in monetary policy-making) only started to tighten monetary policy in 1989 out of anxiety about incipient inflation pressures.

--Brendan Brown, The Yo-Yo Yen and the Future of the Japanese Economy (Houndmills, UK: Palgrave, 2002), 123.