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What about Japan?

Author

Listed:
  • Yi-Li Chien
  • Harold L. Cole
  • Hanno Lustig

Abstract

Over the last decade, the Japanese public sector has primarily borrowed at floating rates while investing in longer-duration risky assets, earning an annual return exceeding 6% of GDP above its funding costs. We quantify the impact of Japan’s low-rate policies on its government and households. The government duration mismatch expands fiscal space when real rates fall, helping the government fulfill promises to older 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 tend to tax younger and less financially sophisticated households.

Suggested Citation

  • Yi-Li Chien & Harold L. Cole & Hanno Lustig, 2023. "What about Japan?," NBER Working Papers 31850, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31850
    Note: AP EFG IFM ME PE
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    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F30 - International Economics - - International Finance - - - General

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