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

Keiichiro Kobayashi, Kozo Ueda*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

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.

Original languageEnglish
JournalJournal of Money, Credit and Banking
DOIs
Publication statusAccepted/In press - 2022

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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