When the Bank of Japan adopted the zero interest rate policy around two years ago, public investment for the first quarter of 1999 increased (+13.3%) compared with the previous year. In contrast, private demand such as household consumption and business investment declined (-2.0%) in the same period. However, this contrast has been gradually reversed during the last two years.
As I have discussed today, more work is needed on the behavior of economic agents in times of profound uncertainty; on asset price bubbles and the determinants of market liquidity; and on the implications of financial factors, including financial instability, for macroeconomics and monetary policy.