FISCAL MULTIPLIERS IN JAPAN

Transcription

1 FISCAL MULTIPLIERS IN JAPAN Alan Auerbach and Yuriy Gorodnichenko UC Berkeley July 25, 2013

2 How Large are Fiscal Multipliers? Previous papers (AG 2012, 2013): Multipliers of government purchases are larger in recession than in expansion; result holds for different indicators for distinguishing recession from expansion. Definition of shocks matters; purging VAR innovations of components predictable using realtime forecasts tends to increase multiplier estimates, particularly for periods of recession.

3 How Large are Fiscal Multipliers? This paper: Adapt methodology from AG 2013 (for a panel of OECD countries) to study Japan. Initial results, for longest sample period ( ) consistent with earlier findings. But evidence of multiplier instability over time, and issues to confront involving data and defining the business cycle.

4 Methodology Follow AG 2013, using direct projection approach to study effects of (log) government purchases (G) on (log) output (Y): +h = h + ( 1 ),h ( ) ( 1 ),h ( ) 1 + ( 1 ),h + 1 ( 1 ),h +,h (1) where: ( ) = exp ( ) 1+exp ( ), > 0 (2)

5 Methodology Follow AG 2013, using direct projection approach to study effects of (log) government purchases (G) on (log) output (Y): +h = h + ( 1 ),h ( ) ( 1 ),h ( ) 1 + ( 1 ),h + 1 ( 1 ),h +,h (1) where: ( ) = exp ( ) 1+exp ( ), > 0 (2) X t-1 is a vector of control variables, including 4 lags of Y and G

6 Methodology Follow AG 2013, using direct projection approach to study effects of (log) government purchases (G) on (log) output (Y): +h = h + ( 1 ),h ( ) ( 1 ),h ( ) 1 + ( 1 ),h + 1 ( 1 ),h +,h (1) where: ( ) = exp ( ) 1+exp ( ), > 0 (2) G FE t is contemporaneous shock to G, conditional on X t-1 and real-time forecasts

7 Methodology Follow AG 2013, using direct projection approach to study effects of (log) government purchases (G) on (log) output (Y): +h = h + ( 1 ),h ( ) ( 1 ),h ( ) 1 + ( 1 ),h + 1 ( 1 ),h +,h (1) where: ( ) = exp ( ) 1+exp ( ), > 0 (2) h is the number of periods ahead the forecast is being made

8 Methodology Follow AG 2013, using direct projection approach to study effects of (log) government purchases (G) on (log) output (Y): +h = h + ( 1 ),h ( ) ( 1 ),h ( ) 1 + ( 1 ),h + 1 ( 1 ),h +,h (1) where: ( ) = exp ( ) 1+exp ( ), > 0 (2) z is a standardized indicator of the state of the business cycle; higher values correspond to stronger economies

9 Methodology Follow AG 2013, using direct projection approach to study effects of (log) government purchases (G) on (log) output (Y): +h = h + ( 1 ),h ( ) ( 1 ),h ( ) 1 + ( 1 ),h + 1 ( 1 ),h +,h (1) where: ( ) = exp ( ) 1+exp ( ), > 0 (2) ( ) ranges between 0 (for strong expansions) and 1 (for deep recessions); set at 1.5 as before.

10 Methodology Follow AG 2013, using direct projection approach to study effects of (log) government purchases (G) on (log) output (Y): +h = h + ( 1 ),h ( ) ( 1 ),h ( ) 1 + ( 1 ),h + 1 ( 1 ),h +,h (1) where: ( ) = exp ( ) 1+exp ( ), > 0 (2) Coefficients depend on the state of the business cycle, with F(z t-1 ) determining weights

11 Methodology Follow AG 2013, using direct projection approach to study effects of (log) government purchases (G) on (log) output (Y): +h = h + ( 1 ),h ( ) ( 1 ),h ( ) 1 + ( 1 ),h + 1 ( 1 ),h +,h (1) where: ( ) = exp ( ) 1+exp ( ), > 0 (2) Impulse response functions come directly from estimates of Φ i,h for different values of h.

12 Data Issues To get long time series for quarterly data on Y and G, need to splice overlapping series from different versions of SNA. Only shorter series for taxes; omit since results for shorter sample similar with and without taxes. Real-time forecasts available only from OECD and IMF, either semiannually from 1985 or quarterly from Present results in paper, but large standard errors.

13 Business Cycle Indicators In previous work, used lagged average (over 7 quarters or 6 semiannual periods) growth rate of real GDP, relative to HP-filtered trend. AG 2013 also considered other measures; little impact on results because alternative indicator series had similar time series patterns For Japan, however, the choice may be more important, so present results for alternative definitions

14 Figure 1. State of Business Cycle

15 Basic Results For full sample period ( ) without controlling for real-time forecasts, results differ by z but in line with our earlier findings Multipliers stronger in recessions

16 Figure 3. Multipliers,

17 Basic Results For full sample period ( ) without controlling for real-time forecasts, results differ by z but in line with our earlier findings Multipliers stronger in recessions In fact, larger than in our previous work (avg(y)/avg(g)) ranges from (measured by scaling coefficients by sample average ratio of output to government purchases, 4.1)

18 Basic Results For full sample period ( ) without controlling for real-time forecasts, results differ by z but in line with our earlier findings Multipliers stronger in recessions In fact, larger than in our previous work (avg(y)/avg(g)) ranges from (measured by scaling coefficients by sample average ratio of output to government purchases, 4.1) But results for later sample weaker, for linear model but also individual regimes

19 Figure 2A. Linear Results, multiplier horizon

20 Figure 2B. Linear Results, multiplier horizon

21 Figure 4. Multipliers,

22 Rolling Sample Results More generally, evidence of time variation in multipliers. Consider 10-year rolling sample periods; focus on linear model due to fewer observations.

23 Figure 5. Multiplier Time Variation

24 Conclusions Some evidence consistent with earlier work, but results don t appear stable over time Multiplier variation may be due to other factors not considered (e.g., ZLB, zombie lending, etc.), but hard to tell with available data Ability to get a clear sense hindered by Data limits (national accounts, real-time forecasts) Difficulty of distinguishing trend and cycle