In this interpretation 1990s stagnation has thus also

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Unformatted text preview: potential output, put by the OECD at some 3½ per cent of GDP, is the single strongest signal that aggregate demand is falling well short of productive potential. In this interpretation, 1990s stagnation has thus also reflected too cautious an attitude on the part of the private sector that could not be fully offset by the rest of the world and by the public sector. Companies have refrained from investing because of the excess capacity created in the 1980s on the one hand, and because of pessimistic longer-run forecasts on the other, as discussed in Dominic Wilson’s paper in this issue. And consumers have stepped up their savings not only to restore their wealth, but also in response to fears of mounting unemployment and a growing pension burden. An unprecedented climate of political uncertainty may also have contributed to such precautionary behaviour—in the 1990s, Japan has been run by a string of weak and divided coalition governments, while corruption scandals have engulfed a hitherto highly regarded bureaucracy. III. WHAT CAN BE DONE? Japan’s continuing stagnation raises an important problem for policy-making...
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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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