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Assessing the Effects of Fiscal Policy in Japan with Estimated and Calibrated DSGE Models

Author

Listed:
  • Takuji Fueki

    (Bank of Japan)

  • Ichiro Fukunaga

    (Bank of Japan)

  • Masashi Saito

    (Bank of Japan)

Abstract

In this paper, we assess the effects of fiscal policy in Japan using two dynamic stochastic general equilibrium (DSGE) models. One is a medium-scale DSGE model of Japan's economy ("M-JEM," Fueki et al., 2010) estimated using Bayesian techniques. The other is the IMF's multi-region "GIMF (Global Integrated Monetary and Fiscal)" model (Kumhof et al., 2010) calibrated to data for Japan and other countries. The government consumption multiplier calculated from the former model is larger than that from the latter, mainly because the negative effects of the resulting increase in the interest rate are larger in the latter model. In both models, however, the effect of a positive government consumption shock on real GDP becomes substantially smaller when the government targets a fiscal surplus by raising tax rates. The effectiveness of endogenous adjustment of the tax policy in response to non-fiscal shocks is not so much different between the two models and is not much affected by changes in the interest rate.

Suggested Citation

  • Takuji Fueki & Ichiro Fukunaga & Masashi Saito, 2011. "Assessing the Effects of Fiscal Policy in Japan with Estimated and Calibrated DSGE Models," Bank of Japan Working Paper Series 11-E-9, Bank of Japan.
    • Handle: RePEc:boj:bojwps:11-e-9
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    References listed on IDEAS

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    Cited by:

    1. Fiorenza Venturini, 2016. "Are Estimates of Fiscal Multipliers Truly Reliable? Some Observations Starting from the Case of Japan," Centro Sraffa Working Papers CSWP23, Centro di Ricerche e Documentazione 'Piero Sraffa'.
    2. McNelis, Paul D. & Yoshino, Naoyuki, 2016. "Finding stability in a time of prolonged crisis: Unconventional policy rules for Japan," Journal of Financial Stability, Elsevier, vol. 27(C), pages 122-136.

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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