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The sovereign debt crisis: why Greece, but not Japan?

The sovereign debt crisis: why Greece, but not Japan? This paper asks why Japan has not yet suffered from a sovereign debt crisis, although its gross public debt as a percentage of GDP is much higher than in Greece. We use a simple stylized model to explain the occurrence of both a fundamental and a speculative debt crisis. We apply this model to both countries and derive some hypotheses about why investors are still ready to hold Japanese Government Bonds. In particular, we point to the significance of domestic debt holdings, to the central bank’s government debt purchases, to investors’ access to “safe havens,” and to the role of an autonomous monetary policy. We also analyze potential challenges to Japan’s long-term fiscal situation, resulting from its aging population. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia Europe Journal Springer Journals

The sovereign debt crisis: why Greece, but not Japan?

Yoshino, Naoyuki; Vollmer, Uwe
Asia Europe Journal , Volume 12 (3) – Jun 10, 2014
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Publisher
Springer Journals
Copyright
Copyright © 2014 by Springer-Verlag Berlin Heidelberg
Subject
Social Sciences, general; Social Sciences, general; International Economics
ISSN
1610-2932
eISSN
1612-1031
DOI
10.1007/s10308-014-0387-5
Publisher site
See Article on Publisher Site

Abstract

This paper asks why Japan has not yet suffered from a sovereign debt crisis, although its gross public debt as a percentage of GDP is much higher than in Greece. We use a simple stylized model to explain the occurrence of both a fundamental and a speculative debt crisis. We apply this model to both countries and derive some hypotheses about why investors are still ready to hold Japanese Government Bonds. In particular, we point to the significance of domestic debt holdings, to the central bank’s government debt purchases, to investors’ access to “safe havens,” and to the role of an autonomous monetary policy. We also analyze potential challenges to Japan’s long-term fiscal situation, resulting from its aging population.

Journal

Asia Europe Journal – Springer Journals

Published: Jun 10, 2014

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