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  • Fiscal Policy Switching in Japan, the U.S., and the U.K.

    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 Markovswitching 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.

    Introduction

    Recent studies about the conduct of monetary policy suggest that the fiscal policy regime has important implications for the choice of desirable monetary policy rules, particularly, monetary policy rules in the form of inflation targeting (Sims (2005), Benigno and Woodford (2007)). It seems safe to assume that fiscal policy is characterized as “Ricardian” in the terminology of Woodford (1995), or “passive” in the terminology of Leeper (1991), if the government shows strong fiscal discipline. If this is the case, we can design an optimal monetary policy rule without paying any attention to fiscal policy. However, if the economy is unstable in terms of the fiscal situation, it would be dangerous to choose a monetary policy rule independently of fiscal policy rules. For example, some researchers argue that the recent accumulation of public debt in Japan is evidence of a lack of fiscal discipline on the part of the Japanese government, and that it is possible that government bond market participants may begin to doubt the government’s intention and ability to repay the public debt. If this is the case, we may need to take the future evolution of the fiscal regime into consideration when designing a monetary policy rule.

  • Measuring Fiscal Multipliers during the Zero Interest Rate Period(in Japanese)

    Abstract

    本稿では,政府税収の四半期データと四半期での税収の産出量弾性値を作成した上で,それを用いて構造VAR モデルを推計し日本の財政乗数を計測する。分析の結果,財政乗数は 1980 年代半ば以降,顕著に低下していることが確認された。すなわち,バブル前(1965-86 年)の期間は,政府支出や税へのショックが産出量に有意な影響を及ぼしていたが,それ以降(1987-2004 年)はほとんど影響を及ぼしていない。ただし,1980 年代以降の財政乗数の低下は米英などでも観察されており,必ずしも日本に固有の現象ではない。

    Introduction

    財政乗数は低下したのか。低下したとすればそれはなぜか。これらは,バブル崩壊以降,財政をめぐる重要な論点であった。しかし現時点でもコンセンサスが得られているとは言いがたい。例えば,井堀・中里・川出 (2002) などは 1990 年代に財政乗数が低下したと主張している一方,堀・伊藤 (2002) は,1990 年代に財政乗数が低下したという証拠は見当たらないとしている。

  • Fiscal Policy Switching: Evidence from Japan, US, and UK

    Abstract

    This paper estimates fiscal policy feedback rules in Japan, the United States, and the United Kingdom, allowing for stochastic regime changes. Using Markov-switching regression methods, we find that the Japanese data clearly reject the view that fiscal policy regime is fixed; i.e., the Japanese government has been adopting either of Ricardian or Non-Ricardian policy at all times. Instead, our results indicate that fiscal policy regimes evolve over time in a stochastic manner. This is in a sharp contrast with the U.S. and U.K. results in which the government’s fiscal behavior is consistently characterized by Ricardian policy.

    Introduction

    Recent studies about the conduct of monetary policy argue that fiscal policy regime has important implications for the choice of desirable monetary policy rules, in particular, monetary policy rules in the form of inflation targeting (Sims (2005), Benigno and Woodford (2006)). Needless to say, we can safely believe that fiscal regime during the peace time is characterized as “Ricardian” in the terminology of Woodford (1995), or “passive” in the terminology of Leeper (1991). In such a case, we are allowed to design an optimal monetary policy rule without paying any attention to fiscal regimes. However, if the economy is unstable in terms of fiscal situations, it would be dangerous to choose a monetary policy rule independently of fiscal policy regimes. For example, some researchers argue that rapid accumulation of public debt in Japan is an evidence for the lack of fiscal discipline of the Japanese government. If this is the case, it would be possible that participants in the government bond market will come to have doubts about the government’s intention to repay public debt. Given this environment, it would not be desirable to design a monetary policy rule without paying any attention to the future evolution of fiscal policy regime. The purpose of this paper is to estimate fiscal policy feedback rules in Japan, the United States, and the United Kingdom for more than a century, so as to acquire a deeper understanding about the evolution of fiscal policy regime.

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