Yet any such effect may well be small there is little

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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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