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Regime Switches in Japan's Fiscal Policy: Markov‐Switching VAR Approach

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  • Jun‐Hyung Ko
  • Hiroshi Morita

Abstract

This paper empirically investigates the changing dynamics of fiscal policy shocks on Japan's macroeconomy. By estimating a Markov‐switching vector‐autoregressive (VAR) model, regime switches in both automatic fiscal responses to output and discretionary fiscal shocks are endogenously investigated. The main findings are summarized as follows. First, structural changes occurred in the mid‐1970s, early 1990s, late 1990s and late 2000s. Second, in contrast to the other regimes, expansionary fiscal shocks depress output and consumption in the third regime. Third, the twin‐deficit hypothesis holds in the second to fourth regimes.

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  • Jun‐Hyung Ko & Hiroshi Morita, 2019. "Regime Switches in Japan's Fiscal Policy: Markov‐Switching VAR Approach," Manchester School, University of Manchester, vol. 87(5), pages 724-749, September.
    • Handle: RePEc:bla:manchs:v:87:y:2019:i:5:p:724-749
    DOI: 10.1111/manc.12261
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    2. Cem Çebi & K.Azim Özdemir, 2021. "Cyclical variation of the fiscal multiplier in Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(2), pages 495-509, January.

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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