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Japan

2006

Economics Department Working Paper Series

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Japanese Growth And Stagnation: A Keynesian Perspective, Takeshi Nakatani, Peter Skott Jan 2006

Japanese Growth And Stagnation: A Keynesian Perspective, Takeshi Nakatani, Peter Skott

Economics Department Working Paper Series

This paper uses a modified Harrodian model to understand both the long period of rapid Japanese growth and the recent period of stagnation. The model has multiple steady-growth solutions when the labour supply is highly elastic, and government intervention, we argue, took the Japanese economy onto a high-growth trajectory. Labour constraints began to appear around 1970, and a combination of high saving rates and slow population growth account for the stagnation of the 1990s. This combination produces a structural liquidity trap and threatens the sustainability of attempts to ensure near full employment through …fiscal policy or by running a persistent …