Hitotsubashi Institute for Advanced Study


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


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.

Report No.: HIAS-E-97
Author(s): Hiroshi Morita
Affiliation: Institute of Comparative Economic Studies, Hosei University 4342 Aihara, Machida, Tokyo 194-0298, Japan
Issued Date: March 2020
Keywords: TVP-VAR model; Fiscal multiplier; Effective lower bound; Implied rate
JEL: E62, C32, E52