Fiscal Policy Switching: Evidence from Japan, the U.S., and the U.K

Arata Ito, Tsutomu Watanabe and Tomoyoshi Yabu
Additional contact information
Arata Ito: Graduate Student, Graduate School of Economics, Hitotsubashi University (E-mail: ged1102@srv.cc.hit-u.ac.jp)
Tsutomu Watanabe: Institute of Economic Research and Research Center for Price Dynamics, Hitotsubashi University (E-mail: tsutomu.w@srv .cc.hit-u.ac.jp)

No 07-E-02, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: This paper estimates fiscal policy feedback rules in Japan, the United States, and the United Kingdom for more than a century, allowing for stochastic regime changes. Estimating a Markov-switching model by the Bayesian method, we find the following: First, the Japanese data clearly reject the view that the fiscal policy regime is fixed, i.e., that the Japanese government adopted a Ricardian or a non-Ricardian regime throughout the entire period. Instead, our results indicate a stochastic switch of the debt-GDP ratio between stationary and nonstationary processes, and thus a stochastic switch between Ricardian and non-Ricardian regimes. Second, our simulation exercises using the estimated parameters and transition probabilities do not necessarily reject the possibility that the debt-GDP ratio may be nonstationary even in the long run (i.e., globally nonstationary). Third, the Japanese result is in sharp contrast with the results for the U.S. and the U.K. which indicate that in these countries the government's fiscal behavior is consistently characterized by Ricardian policy.

Keywords: Fiscal Policy Rule; Fiscal Discipline; Markov-Switching Regression (search for similar items in EconPapers)
JEL-codes: E62 (search for similar items in EconPapers)
Date: 2007-02
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-pbe
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.imes.boj.or.jp/research/papers/english/07-E-02.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:07-e-02

Access Statistics for this paper

More papers in IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Kinken ().