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Unformatted text preview: timately,
the problem is one of excessive domestic savings.
Merely getting price expectations right, as advocated by some, will not solve the problem. Since the
private sector is unwilling, in the presence of substantial excess capacity, to use these savings for
productive investment, while the public sector, so
far at least, has used them mainly for wasteful
construction projects, the optimal solution would
clearly seem to be that of investment abroad achieved
though a lower exchange rate (Wolf, 2000).
A larger current-account surplus would be optimal
both for Japan and for the rest of the world. For
Japan it would ensure somewhat higher demand in
the short run and higher returns for an ageing
population in the long run. For the rest of the world
it would provide needed savings, thereby raising
capital formation and lowering real interest rates.
What Britain did in the second half of the nineteenth
century, when it also recorded large current account
surpluses and vast capital exports, Japan co...
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This note was uploaded on 02/03/2014 for the course ECON 204 taught by Professor Devero during the Summer '13 term at American University of Sharjah.
- Summer '13