Work

Secular Stagnation and Low Interest Rates Under the Fear of a Government Debt Crisis

Year: 2020

Type: article

Abstract: In this study, we explain the driving forces behind the secular stagnation associated with a persistent decrease in interest rates by employing a model that incorporates a crisis risk triggered by government debt accumulation. The model shows that fear of large‐scale capital taxation and capital misallocation in future debt crises accounts for almost half the economic slowdown in Japan over the past two decades. Over the same period, the government bond yield declines, because a decrease in the expected returns on capital makes investing in government bonds more attractive than investing in capital.

Source: Journal of money credit and banking

DOI: 10.1111/jmcb.12909

Authors: KEIICHIRO KOBAYASHI, KOZO UEDA

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,000

Funder: Japan Society for the Promotion of Science

Awards: Central Bank Communication Design, Product Turnover and Pricing Behavior under Deflation(Fostering Joint International Research)