| dc.description.abstract | The purpose of this research is to investigate the efficacy of Taiwan’s fiscal policy in a zero lower bound (ZLB) environment. We split our sample between 1981Q1 and
2021Q3 into a normal period and a ZLB period. Following Blanchard and Perotti (2002), we identify unexpected Taiwanese government spending shock and estimate the impulse
responses of macroeconomic variables using smooth local projections. The variables of interest include real GDP, private consumption, private investment, nominal interest rate, and price level. Our results indicate that the effects of Taiwanese fiscal policy are different in the two periods. First, output multiplier during the ZLB period is higher than that during the normal period, however both no greater than one. Second, an expansionary government spending shock during the ZLB period crowds out the private consumption;
however, the resulting strong crowd-in effect on the private investment leads to a positive output multiplier. On the contrary, an expansionary government spending shock during
the normal period crowds in the private consumption and strongly crowds out the private investment, which leads to a negative output multiplier in the short run. Responding to
a positive government spending shock, during the ZLB period the nominal interest rate declines considerably while inflation rate barely changes. Conversely, during the normal
period nominal interest rate rises as inflation rate increases. Accordingly, an expansionary government spending shock will result in a falling real interest rate during the ZLB period, and have an uncertain result during the normal period. This result suggests that Taiwan’s recent expansionary fiscal policy in a ZLB environment is more effective than during thenormal period | en_US |