Saving and Interest Rates in Japan: Why They Have Fallen and Why They Will Remain Low

Federal Reserve Bank of San Francisco Working Paper No. 2006-39

33 Pages Posted: 6 Aug 2007

See all articles by R. Anton Braun

R. Anton Braun

University of Tokyo - Faculty of Economics

Daisuke Ikeda

Bank of Japan

Douglas H. Joines

University of Southern California - Marshall School of Business

Date Written: May 2006

Abstract

This paper quantifies the role of alternative shocks in accounting for the recent declines in Japanese saving rates and interest rates and provides some projections about their future course. We consider three distinct sources of variation in saving rates and real interest rates: changes in fertility rates, changes in survival rates, and changes in technology. The empirical relevance of these factors is explored using a computable dynamic OLG model. We find that the combined effects of demographics and slower total factor productivity growth successfully explain both the levels and the magnitudes of the declines in the saving rate and the after-tax real interest rate during the 1990s. Model simulations indicate that the Japanese savings puzzle is over.

Keywords: interest rates

Suggested Citation

Braun, R. Anton and Ikeda, Daisuke and Joines, Douglas H., Saving and Interest Rates in Japan: Why They Have Fallen and Why They Will Remain Low (May 2006). Federal Reserve Bank of San Francisco Working Paper No. 2006-39, Available at SSRN: https://ssrn.com/abstract=1004813 or http://dx.doi.org/10.2139/ssrn.1004813

R. Anton Braun (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Daisuke Ikeda

Bank of Japan ( email )

2-1-1, Hongoku-cho
Nihonbashi
Chuo-ku, Tokyo, 103-8660
Japan

Douglas H. Joines

University of Southern California - Marshall School of Business ( email )

Hoffman Hall 702 H
Los Angeles, CA 90089
United States
213-740-6510 (Phone)
213-740 6650 (Fax)

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