Macroeconomic Volatility Under High Accumulation of Government Debt: Lessons from Japan

Paul McNelis () and Naoyuki Yoshino ()

Chapter Chapter 4 in Japan’s Lost Decade, 2017, pp 77-108 from Springer

Abstract: Abstract This chapter applies Bayesian estimation to an open-economy dynamic stochastic general equilibrium (DSGE) model of Japan to assess the effects of expanding government debt on interest rates, real exchange-rate dynamics, and real sector performance. We find that the emergence of even a small risk premium on will trigger considerable instability in the real and nominal variables. We show that a switch to an exchange-rate rule for monetary policy would considerably moderate the instability induced by a rising risk premium.

Keywords: Risk premium; Bayesian estimation; Financial instability (search for similar items in EconPapers)
Date: 2017
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Journal Article: MACROECONOMIC VOLATILITY UNDER HIGH ACCUMULATION OF GOVERNMENT DEBT: LESSONS FROM JAPAN (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:spr:adbchp:978-981-10-5021-3_4

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DOI: 10.1007/978-981-10-5021-3_4

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