year | field

Research on development of Macroeconomic models for estimating economic effects of public investment（Report No.149）

Summary

This study aims to develop New-Keynesian type Dynamic Stochastic General Equilibrium (DSGE) model for estimating economic effects of public investment. In the context of DSGE studies related to governmental expenditure, a presence of contradictive phenomenon between empirical evidence and theoretical prediction using the model, known as ‘fiscal policy puzzle’ has been pointed out by a number of previous studies. We constructed our models towards solving the puzzle. In FY2016, we reviewed previous literatures on fiscal policy puzzle and model modifications proposed to solve the puzzle, and developed a DSGE which contains standard NK characteristics with productivity of public capital as a “baseline” model in our study. In FY2017, we expanded our baseline DSGE model into two ways to address fiscal policy puzzle; one is introducing certain proportion of Non-Ricardian households; and the another is introducing Non-separable preferences over consumption and leisure, and inertia of households’ consumption, known as ‘Deep habits’.

Keywords

Dynamic Stochastic General Equilibrium、Public investment、Fiscal policy puzzle

Publication

Jan 2019

Report