Unformatted text preview: ationary expectations could be created at home,
there is still little certainty that demand would pick
up. A fall in the real interest rate, per se, would
obviously have some favourable impact on investment. Yet any such effect may well be small. There
is little evidence that interest rates have been an 8 This has been true of Britain’s wholesale repudiation of Keynesianism under Mrs Thatcher (Buiter and Miller, 1981), of the
United States’ shift to base money targeting under Volcker (Blanchard, 1984), or of France’s and Italy’s attempts at importing
Bundesbank credibility under the EMS (Egebo and Englander, 1992). 7 OXFORD REVIEW OF ECONOMIC POLICY, VOL. 16, NO. 2 important factor behind the very high investment
levels of the past (see, for instance, Dekle’s reference to Kiyotaki and West, 1996). And present
business expectations are heavily influenced by
massive over-capacity and poor demand prospects.
On the savings side, lower interest rates would
depress current disposable income, given the high
share of interest-bearing deposits held by Japanese...
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