著者

國枝 繁樹

出版者

一橋大学大学院経済学研究科

雑誌

一橋経済学 (ISSN:18812376)

巻号頁・発行日

vol.9, no.1, pp.9-43, 2015-07

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Despite huge Japanese public debt, some argue that low JGB interest rates imply that Japanese fiscal construction is not urgent. In this paper, I consider several factors behind the low JGB interest rates. First, using Barro (2006, 2009)'s rare disaster models with the projected probability and size of economic damage of great earthquakes in Japan, I show that the low safe interest rates may reflect larger risk aversion and/or larger risks. Also, the large convenience yields may explain the low JGB interest rates. However, these are based on the belief that Japanese government will take drastic tax increases and expenditure cuts to recover fiscal sustainability. If the default risk is recognized, high risk aversion and loss of large convenience yields imply that interest rates can jump up. In my estimation, when the default risk of JGBs in rare disasters is recognized, their interest rates can rise above 7%. Further, some of the policies that effectively worked as financial repression policies (such as heavy safe asset investment by GPIF) will change in near future. In conclusion, low JGB interest rates do not imply that fiscal reconstruction is not urgent in Japan.