Abstract
IS-LM analysis has been a mainstream of effects on public investment with interests on if "crowding out" affects private investments. Authors' past studies in this subject have concluded crowding out would not occur under deflationary recessions when economy is in a liquidity trap. Yet, IS-LM analysis will not counter the criticism that it does not reflect future expectations (i.e. Lucas critique). However, recent advancement in Dynamic Stochastic General Equilibrium (DSGE) model allowed the situation to improve. Hence, this study estimates the effects of public investment (i.e. fiscal policy) in Japan under a liquidity trap, using DSGE model by estimating deep parameters with Bayes estimation and MCMC procedure based on the data since 2000.
