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

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Author Info
R. Anton Braun (Faculty of Economics, University of Tokyo)
Daisuke Ikeda (Bank of Japan)
Douglas H. Joines (Marshall School of Business, University of Southern California)
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 four distinct sources of variation in saving rates and real interest rates: changes in fertility rates, changes in survival rates, changes in technology and changes in uninsurable labor income risk. The emprical 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.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-328.

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Length: 39 pages
Date of creation: Mar 2005
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Handle: RePEc:tky:fseres:2005cf328

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Charles Yuji Horioka & Hideki Fujisaki & Wako Watanabe & Takatsugu Kouno, 2000. "Are Americans More Altruistic than the Japanese? A U.S.-Japan Comparison of Saving and Bequest Motives," NBER Working Papers 7463, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Hayashi, Fumio, 1995. "Is the Japanese Extended Family Altruistically Linked? A Test Based on Engel Curves," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 661-74, June. [Downloadable!] (restricted)
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  3. Hansen, G.D., 1991. "The Cyclical and Secular Behavior of the Labor Input : Comparing Efficiency Units and Hours Worked," Papers 36, California Los Angeles - Applied Econometrics.
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  1. R. Anton Braun & Daisuke Ikeda & Douglas H. Joines, 2007. "The Saving Rate in Japan: Why It Has Fallen and Why It Will Remain Low," CIRJE F-Series CIRJE-F-535, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
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