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Is shutting Krugman's liquidity trap the answer to Japan's problems?

Wilson, Dominic; Wilson, Dominic


Paul Krugman has argued that the primary source of Japan’s current problems is that the economy faces a liquidity trap. According to Krugman, this has occurred because Japan confronts negative equilibrium real interest rates for a substantial period. To escape the trap, the Bank of Japan must generate inflationary expectations. This paper extends Krugman’s argument to consider the impact of demographic change on savings and investment and finds that Japan’s equilibrium real interest rate is...[Show more]

CollectionsANU Research Publications
Type: Working/Technical Paper
Source: Pacific Economic Papers; No. 297
Access Rights: Open Access


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