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The Public Investment Multipliers: Evidence from Stock Returns of Narrowly Defined Industry in Japan

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  • KANAZAWA, Nobuyuki
  • 金澤, 伸幸

Abstract

This paper provides an evidence on the macroeconomic impacts of public investment. I extract public investment news shocks from the excess return of narrowly defined road pavement firms in Japan and use them as an instrument for future government spending. I found that the extracted news shocks predict the future government spending through changes in future public investment. The result shows that the public investment multiplier is 1.64 a year after the shock and about 5 after four years, which is considerably larger than fiscal multipliers estimated in previous studies. The findings highlight the importance of the types of government spending, in addition to the amount of the spending, in determining the overall effects of countercyclical fiscal policies.

Suggested Citation

  • KANAZAWA, Nobuyuki & 金澤, 伸幸, 2018. "The Public Investment Multipliers: Evidence from Stock Returns of Narrowly Defined Industry in Japan," Discussion paper series HIAS-E-66, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-66
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/29112/070_hiasDP-E-66.pdf
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    References listed on IDEAS

    as
    1. JonasD.M. Fisher & Ryan Peters, 2010. "Using Stock Returns to Identify Government Spending Shocks," Economic Journal, Royal Economic Society, vol. 120(544), pages 414-436, May.
    2. Harald Uhlig, 2010. "Some Fiscal Calculus," American Economic Review, American Economic Association, vol. 100(2), pages 30-34, May.
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    Cited by:

    1. Morita, Hiroshi & 森田, 裕史, 2019. "Forecasting Public Investment Using Daily Stock Returns," Discussion paper series HIAS-E-88, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    2. Dante Cardoso & Laura Carvalho & Gilberto Tadeu Lima & Luiza Nassif-Pires & Fernando Rugitsky & Marina Sanches, 2023. "The Multiplier Effects of Government Expenditures on Social Protection: A Multi-Country Analysis," Working Papers, Department of Economics 2023_11, University of São Paulo (FEA-USP).

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    More about this item

    Keywords

    Fiscal multiplier; Stock returns; Public Investment; Infrastructure; Investment;
    All these keywords.

    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
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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