Zero interest rate policy and asymmetric price adjustment in Japan: an empirical analysis of a nonlinear DSGE model

We incorporate zero lower bound (ZLB) in monetary policy rule and asymmetric adjustment costs (AAC) in Rotemberg price setting mechanism and solve nonlinear New Keynesian DSGE models using projection method. And we estimate the latest Japanese economy between 1981:Q3 and 2015:Q1 from the viewpoint of Bayesian approach with particle filter. Marginal likelihood shows that both ZLB and AAC overwhelmingly contribute to explain fluctuations of his output growth, inflation and nominal interest rate. This result indicates that the adjustment costs in deflation are about 24-32% higher than those in inflation. The wide curved policy functions make the effects of monetary policy shock much more uncertain expressing as spread credible bands of the impulse responses. We also report models with only the ZLB constraint might mislead the effect of monetary policy to output and inflation over-estimated in the case of Japan

Child Care, Time Allocation, and Life Cycle

This research investigates the impact of gender-related differences in preferences and efficiency in household tasks on the time distribution throughout marriages, aiming to uncover the underlying reasons behind gender-based discrepancies in labor earnings, especially regarding childcare duties. By utilizing aggregated data from Japan's "Survey on Time Use and Leisure Activities," this study enhances the life cycle model introduced initially by Blundell et al. (2018) by integrating a heterogeneous range of ages for a child, covering her growth from infancy to adulthood. The outcomes derived from the model are then aligned with actual data through a fitting process, followed by simulations of policies catering to married couples' varying educational backgrounds. Our model's calculations indicate a reduction in maternal earnings after childbirth, consistent with the findings of the empirical investigation known as the "child penalty." However, a notable disparity emerges between the projected outcomes of the model and the observed data during the subsequent phase of maternal earnings recovery, with a discrepancy of approximately 40 %. Furthermore, our calculations demonstrate that a 25 % increase in the income replacement rate for parental leave results in an almost 20 % increase in the utilization of parental leave. In contrast, a steady 10 % rise in wages leads to a modest 2.5 % increase in the utilization of parental leave.Comment: 23 page

Zero interest rate policy and asymmetric price adjustment in Japan: an empirical analysis of a nonlinear DSGE model

We incorporate zero lower bound (ZLB) in monetary policy rule and asymmetric adjustment costs (AAC) in Rotemberg price setting mechanism and solve nonlinear New Keynesian DSGE models using projection method. And we estimate the latest Japanese economy between 1981:Q3 and 2015:Q1 from the viewpoint of Bayesian approach with particle filter. Marginal likelihood shows that both ZLB and AAC overwhelmingly contribute to explain fluctuations of his output growth, inflation and nominal interest rate. This result indicates that the adjustment costs in deflation are about 24-32% higher than those in inflation. The wide curved policy functions make the effects of monetary policy shock much more uncertain expressing as spread credible bands of the impulse responses. We also report models with only the ZLB constraint might mislead the effect of monetary policy to output and inflation over-estimated in the case of Japan

Has the Business Cycle Changed in Japan? A Bayesian Analysis Based on a Markov-Switching Model with Multiple Change-Points.

Using a Markov-switching model and Bayesian inference, the turning points of Japanese business cycles are identified from a monthly coincident composite index series, taken over the last thirty years. Ordinarily, in taking such a long-range estimation approach, we would face the following questions: (1) Have there been any structural changes? (2) If so, does the existence of these structural changes prevent the detection of the turning points? (3) How many changes have occurred? (4) When did these changes occur? The Bayesian analysis approach easily provides answers. The estimation results suggest that the Markov-switching model with no changes is unable to identify turning points appropriately, whereas the model with changes selected via the Bayes factor robustly estimates these points for the long period of time considered, and also successfully facilitates estimation of the changes in amplitude that occurred between booms and recessions, as well as in the volatility of business cycles

A Bayesian Estimation of HANK models with Continuous Time Approach:Comparison between US and Japan

Abstract This paper estimates heterogeneous agent New Keynesian (HANK) model for US and Japan through three aggregate observations: real GDP, inflation and interest rate, by adopting combination of easy-to-use computational method for solving the model, developed by Ahn, Kaplan, Moll, Winberry and Wolf (2019), and sequential Monte Carlo (SMC) method with Kalman filter applied for Bayesian estimation with parallel computing. The combination make us enjoy the estimation of HANK just using a Laptop PC, e.g., Mac Book Pro, with MATLAB, neither many-core server computer nor FORTRUN language. We show estimation results of one Asset HANK model, i.e., impulse response, fluctuations of distributions of heterogeneous agent as well as historical decomposition for both countries. Even though using the same model, different data draws different pictures

The interaction of forward guidance in a two-country new Keynesian model

Using the method of Haberis and Lipinska (2020), this paper explores the effect of forward guidance (FG) in a two-country New Keynesian (NK) economy under the zero lower bound (ZLB). We simulate the effect of different lengths of FG or the zero interest rate policy under the circumstance of the global liquidity trap. We show that the size of the intertemporal elasticity of substitution plays an important role in determining the beggar-thy-neighbor effect or the prosper-thy-neighbor effect of home FG policy on the foreign economy. And in the former case, by targeting a minimum welfare loss of the individual country alone but not global welfare loss, two central banks can perform interesting FG bargaining in which they cooperatively adopt the same length of FG or strategically deviate from cooperation

The Nexus between Public Debt and the Government Spending Multiplier: Fiscal Adjustments Matter

This paper studies the evolution of government spending multipliers in the post-war U.S. using a time-varying parameter VAR model. We achieve identification by imposing sign and zero restrictions on the systematic component of policy rules and impulse responses. Our results show that the U.S. multipliers in the post-OBRA93 period are smaller than those in the 1970s. The multipliers are found to be more strongly correlated with the estimated coefficients of the debt-stabilizing rule than the debt-to-GDP ratios. The increased magnitude of fiscal adjustments appears to be the major driving force behind the decline in multipliers rather than debt accumulation itself

Do Structural Breaks exist in Okun’s Law? Evidence from the Lost Decade in Japan

This paper presents an analysis as to whether or not there has been a structural break of Okun’s Law, and if so, how many, when and what kind of break, using Bayesian methods via MCMC (Markov Chain Monte Carlo) simulation for the Japanese data from 1961Q1 to 2001Q1. In addition, it identifies structural breaks both in trends (normal level) and cyclical components (normal level), which are ecomposed from output and unemployment rate by new proposed methods as well as widespread methods: H-P filter and Band Pass filter, in contrast to the previous studies of several countries