Corporate sentiment has been affected by two forces

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Unformatted text preview: h equally gloomy projections about the future burden of an ageing population, these forecasts have almost certainly pushed Japanese households, as argued by Krugman (1998), into adjusting consumption today to offset an increasingly uncertain flow of consumption tomorrow. Corporate sentiment has been affected by two forces. On the one hand, simple accelerator effects, stemming from low consumer demand, have depressed investment and employment. On the other hand, companies massively over-invested (and over-hired) in the ‘bubble’ period. As a result, a large amount of spare capacity and surplus labour is still weighing on the economy. Estimates have been made of the size of this needed adjustment (OECD, 1999). Excess physical capacity at the end of the decade was probably of the order of 3–7 per cent of the economy’s capital stock (or, perhaps, on average, 6 months worth of investment). Excess labour may have been of the order of 2m workers and probably a good deal more, equivalent to at least 3 per cent of total employment. It is...
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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.

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