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Empirical Analysis on the Effects of Japanese Fiscal Policy under the Effective Lower Bound

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  • Morita, Hiroshi

Abstract

For the Japanese economy, we examine whether the fiscal multiplier is higher under the effective lower bound of the nominal interest rate. Using a time-varying parameter vector autoregression model with Tobit-type nonlinearity, we calculate the fiscal multipliers under two monetary policy positions. We find that when government spending shocks are inflationary, the fiscal multiplier under the zero interest rate policy increases steadily as a result of the decrease in the real interest rate. This evidence is robust to different definitions of effective lower bound, output, and government spending.

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  • Morita, Hiroshi, 2020. "Empirical Analysis on the Effects of Japanese Fiscal Policy under the Effective Lower Bound," Discussion paper series HIAS-E-97, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-97
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    Cited by:

    1. Chunbing Cai & Jordan Roulleau-Pasdeloup, 2023. "Simple Analytics of the Government Investment Multiplier," Papers 2302.11212, arXiv.org, revised Sep 2023.

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    More about this item

    Keywords

    TVP-VAR model; Fiscal multiplier; Effective lower bound; Implied rate;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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