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Japanese Fiscal Policy under the Zero Lower Bound of Nominal Interest Rates: Time-Varying Parameters Vector Autoregression

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  • Morita, Hiroshi

Abstract

This study investigates whether the effects of fiscal policy are enhanced during ZLB periods. We present a new strategy for identifying unconventional monetary policy shocks in the framework of a time-varying parameters vector autoregressive model. The main findings are as follows. First, during ZLB periods, the volatility of short-term interest rates is quite small, while that of the monetary base is large. Second, fiscal policy shocks have significant positive time-varying effects on GDP after adoption of unconventional monetary policy. Third, the effects of fiscal policy shocks increase during a ZLB period.

Suggested Citation

  • Morita, Hiroshi, 2015. "Japanese Fiscal Policy under the Zero Lower Bound of Nominal Interest Rates: Time-Varying Parameters Vector Autoregression," Discussion Paper Series 627, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:627
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    References listed on IDEAS

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    Cited by:

    1. Shin-ichi Fukuda & Naoto Soma, 2021. "Evaluation of Japan’s Macro-Fiscal Policy and its Challenges," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 17(2), pages 1-28, November.
    2. Kameda, Taisuke & Namba, Ryoichi & Tsuruga, Takayuki, 2021. "Decomposing local fiscal multipliers: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 57(C).
    3. Tomomi Miyazaki & Kazuki Hiraga & Masafumi Kozuka, 2018. "Stock Market Response to Public Investment under the Zero Lower Bound: Cross-industry Evidence from Japan," Working Papers 171806, University of California-Irvine, Department of Economics.
    4. Fukuda, Shin-ichi, 2023. "Evaluation of fiscal policy using alternative GDP data in Japan," Japan and the World Economy, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    TVP-VAR model; zero lower bound; sign restriction; fiscal policy;
    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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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

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