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

Keiichiro Kobayashi and Kozo Ueda

No 20-008E, CIGS Working Paper Series from The Canon Institute for Global Studies

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.

Pages: 53
Date: 2020-11
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Working Paper: Secular stagnation and low interest rates under the fear of a government debt crisis (2020) Downloads
Working Paper: Secular Stagnation and Low Interest Rates under the Fear of a Government Debt Crisis (2017) Downloads
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