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Impact of fiscal policies on the labor market with search friction: An estimated DSGE model for Japan

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  • Lu, Zhenkun
  • Kameda, Keigo

Abstract

This study investigates the effects of heterogenous fiscal policies on Japan's labor market amidst increasing national debt and economic downturns. We develop a Dynamic Stochastic General Equilibrium model incorporating labor market search friction, staggered wage negotiation, price stickiness and productive government employment. This model is used to compare the impacts of multiple fiscal policies—including government employment spendings, direct government expenditures, and tax cuts—on employment. The model, estimated with macroeconomic data of Japan spanning 1985 to 2019, offers a detailed look at how fiscal policies influence employment dynamics.

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  • Lu, Zhenkun & Kameda, Keigo, 2024. "Impact of fiscal policies on the labor market with search friction: An estimated DSGE model for Japan," Journal of the Japanese and International Economies, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:jjieco:v:72:y:2024:i:c:s088915832400011x
    DOI: 10.1016/j.jjie.2024.101315
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    More about this item

    Keywords

    Fiscal policy; Dynamic Stochastic General Equilibrium (DSGE) model; Labor market frictions; The Japanese economy; Unemployment;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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