Stock Market Response to Public Investment under the Zero Lower Bound: Cross-industry Evidence from Japan

Tomomi Miyazaki, Kazuki Hiraga () and Masafumi Kozuka ()
Additional contact information
Kazuki Hiraga: School of Political Science and Economics, Tokai University
Masafumi Kozuka: University of Marketing and Distribution Sciences (Japan)

No 171806, Working Papers from University of California-Irvine, Department of Economics

Abstract: This research examines the effects of public investment on stock returns using Japanese cross-industry data. We calculate impulse response functions using the local projection method. The empirical results show that public investment shocks have strong and stimulating effects on stock returns when the nominal interest rate is at the zero lower bound (ZLB) while negative responses dominate outside of the ZLB period. Furthermore, the estimated impulse responses for the non-manufacturing industry group are larger than those of the manufacturing industry group. Our results imply that the government should increase public investment when nominal interest rates are near zero to prop up the stock market and cut back once the economy is no longer in a liquidity trap.

Keywords: Public investment; stock returns; local projection method; zero lower bound (search for similar items in EconPapers)
JEL-codes: E44 G12 H54 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2018-04
New Economics Papers: this item is included in nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Stock market response to public investment under the zero lower bound: Cross-industry evidence from Japan (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:171806

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