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Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan

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  • Thuy Lan Nguyen

    (Santa Clara University)

  • Dmitriy Sergeyev

    (Bocconi University)

  • Wataru Miyamoto

    (Bank of Canada)

Abstract

Using a rich data set on government spending forecasts, we estimate the effects of unexpected government spending both when the nominal interest rate is near zero lower bound (ZLB) and outside of the ZLB period in Japan. The output multiplier is 1.5 on impact in the ZLB period, while it is 0.7 outside of the ZLB period. We estimate that the government spending shocks increase both private consumption and investment during the ZLB period but crowd them out in the normal period. The unemployment rate decreases in the ZLB period, while it does not respond significantly during the normal period. We argue that these results are not driven by the amount of slack in the economy. We estimate a positive but mild inflation response in both periods. A calibrated standard New Keynesian model with a fundamental-driven ZLB period can match our empirical findings.

Suggested Citation

  • Thuy Lan Nguyen & Dmitriy Sergeyev & Wataru Miyamoto, 2016. "Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan," 2016 Meeting Papers 666, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:666
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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