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Original Articles Open Access
After the European debt crisis, the Japanese government debt sustainability and the effect of Abe economic policy are paid close attention. In this paper, an analysis framework on government debt sustainability under the modern credit monetary system is constructed based on the linear differential equation. The conclusion shows a country's government debt is sustainable when the difference of the country's economic growth rate with the sum of inflation rate and the debt interest rate is continuous more than zero. Japan's economic growth is consistently less than the sum of the inflation rate and the debt interest rate since 1988. According to the analysis framework’s conclusion, Japan's debt is unsustainable. Abe economic policy against Japan's debt stability, whether debt crisis broke out or not depends on the effect of Abe policy. To ensure the Japanese bonds’ stability, Abe policy must promote rapidly economic growth, inflation under control, and there won’t be other events to detonate debt crisis.
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Author(s): Zhang Ying Hua and Wang Ren Xiang
debt sustainability, debt crisis, the analysis framework of modern credit system, economics