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The Macroeconomic Policy Challenges of Balance Sheet Recession: Lessons from Japan for the European Crisis

32 Pages Posted: 6 Jun 2013  

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Date Written: May 31, 2013

Abstract

The paper compares the boom-and-bust cycles in Japan and Europe with respect to the reasons for excessive booms, the characteristics of the crises, and the (potential) effects of the crisis therapies. As in Japan the consequence of expansionary monetary and fiscal policies is the hysteresis of the low-interest rate and high government debt environment, the erosion of the allocation and signaling function of the interest rate, the gradual quasi-nationalization of financial institutions as well as gradual real income losses, the economic policy implication for Japan and Europe is the timely exit from the current crisis therapies.

Keywords: Japan, Europe, bubble economy, European crisis, low interest rate policy, government debt sustainability, balance sheet recession

JEL Classification: E320, E420, E580

Suggested Citation

Schnabl, Gunther, The Macroeconomic Policy Challenges of Balance Sheet Recession: Lessons from Japan for the European Crisis (May 31, 2013). CESifo Working Paper Series No. 4249. Available at SSRN: https://ssrn.com/abstract=2274638

Gunther Schnabl (Contact Author)

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

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