Fiscal Sustainability of Japan: A Dynamic Stochastic General Equilibrium Approach

Masaya Sakuragawa, Kaoru Hosono

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

The purpose of this paper is to investigate the fiscal sustainability of Japan by applying a dynamic stochastic general equilibrium model to the Japanese economy. By introducing intermediation costs into the model, we succeed in explaining the observed relationship between the interest and GDP growth rates, which is crucial in testing for sustainability. When the projected real growth rate is 2.5%, the average real interest rate becomes 2.57%, and the debt-to-GDP ratio gradually increases stochastically so that government debt is not sustainable. To recover sustainability, the primary surplus must be 0.2% of GDP.

Original languageEnglish
Pages (from-to)517-537
Number of pages21
JournalJapanese Economic Review
Volume61
Issue number4
DOIs
Publication statusPublished - 2010 Dec 1

ASJC Scopus subject areas

  • Economics and Econometrics

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