Miyamoto, Hiroaki
Author
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This paper extends the supply side argument of the Domar model for fiscal sustainability and examines the case of the bond market in People’s Republic of China.
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Public debt sustainability depends on interest rate sensitivity to changes in government bond supply and demand.
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Population aging diminishes the effectiveness of monetary policy and weakens the fiscal stimulus.
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As retirees make up more and more of the population, fiscal and monetary policies become less effective.
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Structural reform, not monetary policy, is key to lifting Japan out of long-term recession.