Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan
Thuy Lan Nguyen,
Dmitriy Sergeyev and
Wataru Miyamoto ()
No 666, 2016 Meeting Papers from Society for Economic Dynamics
Using a rich data set on government spending forecasts, we estimate the effects of unexpected government spending both when the nominal interest rate is near zero lower bound (ZLB) and outside of the ZLB period in Japan. The output multiplier is 1.5 on impact in the ZLB period, while it is 0.7 outside of the ZLB period. We estimate that the government spending shocks increase both private consumption and investment during the ZLB period but crowd them out in the normal period. The unemployment rate decreases in the ZLB period, while it does not respond significantly during the normal period. We argue that these results are not driven by the amount of slack in the economy. We estimate a positive but mild inflation response in both periods. A calibrated standard New Keynesian model with a fundamental-driven ZLB period can match our empirical findings.
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Journal Article: Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan (2018)
Working Paper: Government Spending Multipliers Under the Zero Lower Bound: Evidence from Japan (2017)
Working Paper: Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan (2016)
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