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Federal Reserve Bank of San Francisco
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Saving and interest rates in Japan: why they have fallen and why they will remain low
R. Anton Braun
Daisuke Ikeda
Douglas H. Joines
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 three distinct sources of variation in saving rates and real interest rates: changes in fertility rates, changes in survival rates, and changes in technology. The empirical 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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R. Anton Braun & Daisuke Ikeda & Douglas H. Joines, Saving and interest rates in Japan: why they have fallen and why they will remain low, Federal Reserve Bank of San Francisco, Working Paper Series 2006-39, 2006.
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Keywords: Interest rates - Japan
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