Precautionary behaviour linked to the expectation of recurring crises: Who absorbs the excess savings? Lessons from Japan

We can imagine economic agents wanting to protect themselves from recurring health crises in the future after the COVID crisis. This means that they will save more, invest less and accumulate cash reserves and risk-free assets. So there will be structural excess private sector savings in OECD countries. This raises the question as to who will absorb these excess savings: They could give rise to an external surplus, but this is impossible at equilibrium if all countries have excess savings; The excess savings must therefore be absorbed by government, which has to run a permanent fiscal deficit and tolerate a permanent increase in the public debt ratio. These fiscal deficits would be financed without difficulty, since there are excess private sector savings in search of risk-free investment. Japan provides an illustration of these developments, based on excess private sector savings linked not to expectation s of recurring health crises , but financial crises.