Technical Report Japanese Fiscal Policy under the Zero Lower Bound of Nominal Interest Rates: Time-Varying Parameters Vector Autoregression

Morita, Hiroshi

2015-07 , Institute of Economic Research, Hitotsubashi University
This study investigates whether the effects of fiscal policy are enhanced during ZLB periods. We present a new strategy for identifying unconventional monetary policy shocks in the framework of a time-varying parameters vector autoregressive model. The main findings are as follows. First, during ZLB periods, the volatility of short-term interest rates is quite small, while that of the monetary base is large. Second, fiscal policy shocks have significant positive time-varying effects on GDP after adoption of unconventional monetary policy. Third, the effects of fiscal policy shocks increase during a ZLB period.

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