Stock market response to public investment under the zero lower bound: Cross-industry evidence from Japan

Tomomi Miyazaki, Kazuki Hiraga and Masafumi Kozuka

Journal of the Japanese and International Economies, 2024, vol. 71, issue C

Abstract: This study examines the effects of public investment on the stock market between the zero lower bound (ZLB) and the non-ZLB periods using Japanese sectoral panel data. The empirical results first show that while public investment shocks have stimulating effects on stock returns during the ZLB period, this is not the case outside of the ZLB. Furthermore, the impulse responses for the manufacturing industry are estimated to be positive and significant regardless of model specification. Our results suggest that the government is recommended to increase public investment under the ZLB to prop up the stock market but cut back once the economy is no longer in a liquidity trap.

Keywords: Stock market; public investment; zero lower bound; local projection method; factor-augmented VAR (search for similar items in EconPapers)
JEL-codes: E44 G12 H54 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Stock Market Response to Public Investment under the Zero Lower Bound: Cross-industry Evidence from Japan (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:71:y:2024:i:c:s0889158323000576

DOI: 10.1016/j.jjie.2023.101302

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