Fiscal Multipliers Under the Effective Lower Bound: Evidence from Japan with Censored Interest Rate Model
Year: 2026
Type: article
Abstract: This paper examines whether fiscal multipliers are affected when nominal interest rates are constrained by the effective lower bound (ELB). Using Japan’s prolonged experience under the ELB, we estimate a time-varying parameter VAR model with Tobit-type nonlinearity in the short-term interest rate. The estimates are suggestive of somewhat larger multipliers under the ELB-binding case, particularly at longer horizons, but the differences are modest. To the extent that any difference is present, it is consistent with an interest-rate channel in which monetary policy is constrained from responding fully to inflationary pressures, permitting a larger decline in real interest rates. These qualitative patterns are robust to controlling for fiscal foresight and to using the GDP gap as an alternative output measure.
Author: Hiroshi Morita
Institution: Institute of Science Tokyo
Language: English
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $2,712
OpenAlex ID: W7203679946