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Effects of government spending shocks in China, Japan, and Korea

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  • Minju Jeong
  • Jihye Kang
  • Soyoung Kim

Abstract

This study investigates the effects of government spending shocks on various key macro variables in China, Korea, and Japan using structural VAR models. The main empirical findings are as follows. Government spending multipliers of all three countries are far larger than 1 in recent years. The effectiveness of fiscal expansion has not changed markedly in China but substantially increased in Korea (after the Asian financial crisis) and Japan (during zero lower bound period). Increases in the effectiveness of fiscal expansion are associated with changes in the monetary and exchange rate policy regimes and institutions of these countries. Among the three countries, the government spending multiplier is relatively large in China but relatively small in Japan in recent years. Although the effects on exchange rate and trade balance vary across countries and sample periods, real exchange rate tends to depreciate, whereas trade balance tends to improve under flexible exchange rate regimes. Some empirical findings are consistent with standard theory, but others are not.Abbreviations: NK: New Keynesian VAR: Vector Autoregressive ZLB: Zero Lower Bound

Suggested Citation

  • Minju Jeong & Jihye Kang & Soyoung Kim, 2017. "Effects of government spending shocks in China, Japan, and Korea," China Economic Journal, Taylor & Francis Journals, vol. 10(2), pages 194-225, May.
  • Handle: RePEc:taf:rcejxx:v:10:y:2017:i:2:p:194-225
    DOI: 10.1080/17538963.2017.1321880
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    Cited by:

    1. Park, Joshua K. & Meng, Xiangcai, 2024. "Crowding out or crowding in? Reevaluating the effect of government spending on private economic activities," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 102-117.

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