Japan's higher long-run rates...

It is worth a thought that economic-models assume zero inflation in the long-run. Inflation is a short-run deviation from the equilibrium price-level. Economists think of the long-run as self-correcting. But when deciding long-run rates expected inflation plays an important role because the economy first consumes and then saves for the future; if they expect higher inflation based on the current situation they would also save more for the future too and more savings result in lower spending means lower demand and prices. Interest rate would go down. On the contrary, if they expect deflation based on the current condition they would save less-spend more which might increase demand and prices and interest rate. People expect higher interest rate if there is inflation because the monetary-policy would work to control inflation. Generally, prices and interest rate move in the same direction. Expected inflation would increase the long-run rates, higher than the short-run rates. The long-run rates are higher than the short –run rates which shows that depending on the economic –policy people expect inflation in the long-run which is opposite of what the economic models assume that inflation in the long-run would be lower or zero.  Keynes long ago accepted that labour and other factors of production might not be abundant but capital has no reason to be scarce since the central bank can print money to finance the economy. Gold-Standard off-load was a big move in that direction which was later used to print notes, buy foreign exchange and devalue to gain exports. Keynes foresees capital as not scarce in the long-run. Our zero interest-rate regimes in much of the developed world do support Keynes view that capital is not necessarily scarce. Higher long-run interest rate is against Keynes argument of lower interest rate.