The Monetisation of Japan’s Government Debt

Public Debt Conference, p. 901, 2004

20 Pages Posted: 31 May 2012

See all articles by David E. Lebow

David E. Lebow

Board of Governors of the Federal Reserve System

Date Written: April 1, 2004

Abstract

The analysis by Lebow concerns Japan. Given the high public debt levels, it focuses on the fiscal implications of the monetary expansion undertaken since the early nineties and those of a possible reversal of such a policy in case inflation picks up. The paper argues that for analysing fiscal policy, the consolidated government and central bank net debt is the appropriate aggregate to be considered. According to this view, even if the ratio of public debt to GDP is high, there are important offsetting elements. First, the central bank has already monetised to a relevant extend this debt. Moreover, in case the monetary expansion is allowed to generate temporary inflation, the consolidated debt ratio would fall further. Finally, even in the case of a reversal of the monetary stance, there would be consolidated debt levels lower then generally recognised if small price increases are allowed.

Suggested Citation

Lebow, David E., The Monetisation of Japan’s Government Debt (April 1, 2004). Public Debt Conference, p. 901, 2004, Available at SSRN: https://ssrn.com/abstract=2070742

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