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Abstract

Vol. 60, No. 3, pp. 228-240 (2009)

“Macroeconomics of Corporate Governance -An Alternative Interpretation of Japan's Lost Decade from the Perspective of Investors-”
Hideaki Murase (Faculty of Economics, Nagoya City University)

This paper offers a macroeconomic model which can consistently explain the following facts of Japan's lost decade: the fall in growth rate, the rise in Marshall's k, the rise in consumption propensity, the near-zero interest rate, and the rise in labor share. Our starting point is the profit squeeze caused by the weak governance of Japanese firms. Reacting to this problem, Japanese households flee from productive capital to non-productive money. This reaction is indeed rational from the standpoint of the individual household, but it may also produce a damaging macroeconomic consequence. Specifically, the reaction is supported by the near-zero interest rate but simultaneously supports it. In fact, when the profit squeeze goes beyond a critical level, this positive feedback can severely depress capital accumulation, which may have trapped the Japanese economy in a prolonged stagnation.