Secular stagnation and low interest rates under the fear of a government debt crisis

Keiichiro Kobayashi and Kozo Ueda

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: In this study, we explain the driving forces behind the secular stagnation associated with a persistent decrease in interest rates. To do so, we employ a model that incorporates a crisis risk triggered by an accumulation of government debt. The model shows that the fear of large-scale taxation on capital and misallocations of capital in future debt crises explains almost half the economic slowdown in Japan over the past two decades. Over the same period, the government bond yield decreases, because the uncertainty in returns on capital makes investing in government bonds becomes less risky than investing in capital.

Keywords: Default; government bond; capital levy; lost decades; bank run (search for similar items in EconPapers)
JEL-codes: E32 E62 G18 H12 H63 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2020-04
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Secular Stagnation and Low Interest Rates under the Fear of a Government Debt Crisis (2022)
Working Paper: Secular Stagnation and Low Interest Rates under the Fear of a Government Debt Crisis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-40

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