What about Japan?

45 Pages Posted: 29 Nov 2023

See all articles by YiLi Chien

YiLi Chien

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Harold L. Cole

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2023

Abstract

As a result of the BoJ's large-scale asset purchases, the consolidated Japanese government borrows mostly at the floating rate from households and invests in longer-duration risky assets to earn an extra 3% of GDP. We quantify the impact of Japan's low-rate policies on its government and households. Because of the duration mismatch on the government balance sheet, the government's fiscal space expands when real rates decline, allowing the government to keep its promises to older Japanese households. A typical younger Japanese household does not have enough duration in its portfolio to continue to finance its spending plan and will be worse off. Low-rate policies tax younger, poorer and less financially sophisticated households.

Keywords: fiscal policy, monetary policy, public debt sustainability, financial repression

JEL Classification: G12, E62

Suggested Citation

Chien, YiLi and Cole, Harold L. and Lustig, Hanno N., What about Japan? (November 1, 2023). Stanford University Graduate School of Business Research Paper No. 4620159, Available at SSRN: https://ssrn.com/abstract=4620159 or http://dx.doi.org/10.2139/ssrn.4620159

YiLi Chien

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

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Harold L. Cole

University of Pennsylvania - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Hanno N. Lustig (Contact Author)

Stanford Graduate School of Business ( email )

Stanford GSB
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Stanford, CA California 94305-6072
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3108716532 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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United States

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