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Government is of course present in japan and has

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Unformatted text preview: cess planned savings translate into falling domestic demand (and a current account surplus reemerges, suboptimally, via a reduction in absorption). Government is, of course, present in Japan and has followed an expansionary fiscal policy. Whether this attempt was sufficient to absorb all the ‘excess’ savings is impossible to tell. Ex-post leakages and injections will always be equal. Two indirect pieces of evidence, however, suggest that there may be some truth in the hypothesis of ‘excess’ ex-ante Posen (1998) himself holds an opposite view. 5 OXFORD REVIEW OF ECONOMIC POLICY, VOL. 16, NO. 2 savings. First, the decline in real long-term interest rates, relative to those of the rest of the world, points to the presence of a domestic savings– investment imbalance (Table 3). While in the early 1990s real interest rates were broadly similar in the world’s three largest economies, by the late 1990s Japanese rates had fallen to levels well below those recorded in the United States and Germany. Second, most estimates agree that the economy is today characterized by very substantial underutilization of resources. The existence of a gap between actual and...
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