Research Paper Fiscal multiplier in the Russo–Japanese War : A business cycle accounting perspective

Gunji, Hiroshi  ,  Miyazaki, Kenji

199pp.0 - 24 , 2016-02-29 , Institute of Comparative Economic Studies, Hosei University
In this paper, we use business cycle accounting, introduced by Chari et al. (2007, Econometrica 75 (3), 781-836), to estimate the fiscal multiplier in Japan during the Russo-Japanese War, 1904-1905. This event is considered to be a natural experiment for the following reasons. 1) The ratio of government spending to GNP was relatively greater than that of the other wars involving Japan. 2) As the battlefields were in Korea and China, the war caused little damage to Japan's physical capital or labor supply. 3) The Russo-Japanese War did not involve any monetary transfer to the Japanese economy. 4) Before the war, people were not convinced that Japan and Russia would go to war. Using business cycle accounting, we estimate the value of the fiscal multiplier to be about 0.2 in the short run and about one in the long run. These results are consistent with the previous literature, which estimates the multiplier in different sample periods using econometric models such as structural vector autoregression (VAR) models.

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