Silviase/jgov_v1.4_full_ann huggingface dataset:
LM curve is a factor for crowding out, the rightward shift in the IS curve is a factor for crowding in, such that whether portfolio crowding out or portfolio crowding in occurs depends upon whether it is the IS curve or the LM curve that shifts more.

In the EPA model, the five countries showing IS shifts as a result of changes in wealth are the United States, Japan, West Germany, Canada, and Australia. In the third year, because the wealth effect on the money demand is large in West Germany and Japan, there is a considerable leftward shift in the LM curve, resulting in portfolio crowding out. Yet in Australia, the United States, and Canada, as the wealth effect on consumption is considerable, the rightward shift in the IS curve outweighs the leftward shift in the LM curve, resulting in portfolio crowding in (as shown in Table II·9). In the other three countries (France, the United Kingdom, and Italy), portfolio crowding out occurs because only the LM curve shifts leftward. However, the shift is so slight in Italy that the crowding out is negligible.

The temporal progression in portfolio crowding out is such that (i) there is a consistent increase in crowding in Australia, the United States, and Canada, (ii) there is an initial increase in crowding out followed by diminution in Japan and West Germany (with crowding in finally Occurring in Japan), and (iii) crowding out is negligible throughout the six years in France, the United Kingdom, and Italy. These differences among countries correspond to the differences in the temporal progressions of the shifts of the IS and LM curves (see Table II·10).

## (5) Price·change·induced Shifts in the IS and LM Curves and Inflation Crowding Out

The LM curve always shifts leftward with a rise in prices caused by an increase in government expenditures. In contrast, however, whether the IS curve shifts leftward or rightward is not determined a priori. This is because the IS curve is subject both to leftward·shift pressures from the declines in real income and real wealth, resulting from the rise in prices, and to rightward·shift pressures from the decline in real interest rates. Looking at the results for the third year, the IS curve shifts leftward in the seven countries of Australia, Canada, France, Japan, the Republic of Korea, the United Kingdom, and the United States where the former factors (the declines in real income and real wealth) are dominant. However in West Germany and Italy the IS curve shifts rightward because the latter factor (the decline in real interest rates) is dominant and also because real income increases since the consumption deflator rises less than the other deflators.

Because the LM curve shifts leftward in all of the countries covered as mentioned above, inflation crowding out occurs in all seven of the countries where
Table II·9 Relation between the Size of Portfolio Crowding-out and Wealth Change·induced Shifts in the IS·LM Curves (3rd year)

(1) Initial $ ^{1)} $ Shift	(2) Portfolio $ ^{1)} $ Crowding-out	Rate of Loss by Portfolio Crowding-out (in) ((2) / (1))	Wealth Change-induced Shifts in	Slope of
IS $ ^{2)} $	LM $ ^{3)} $	IS	LM
West Germany	0.79	0.21	0.26	0.11	0.19	$ \Delta $ 0.50	0.09
Japan	1.48	0.07	0.05	0.08	0.42	$ \Delta $ 2.55	0.43
France	1.60	0.03	0.02	-	0.08	$ \Delta $ 2.94	0.21
U. K.	1.32	0.01	0.01	-	0.12	$ \Delta $ 14.13	0.20
Italy	2.46	$ \Delta $ 0.0	$ \Delta $ 0.0	-	0.04	$ \Delta $ 1.92	0.38
Canada	1.38	$ \Delta $ 0.18	$ \Delta $ 0.13	0.19	0.08	-	0.0
U. S.	1.75	$ \Delta $ 0.49	$ \Delta $ 0.28	0.72	0.38	$ \Delta $ 1.63	0.59
Australia	1.49	$ \Delta $ 0.44	$ \Delta $ 0.30	0.47	0.23	$ \Delta $ 14.08	0.55

(Notes) 1. Both the initial shift and portfolio crowding-out are measured by percentage change in GNP.

2. The shift in the IS is measured by percentage change in GNP.

3. The shift in the LM is measured by difference in interest rate.

4. There is no wealth effect on consumption in France, the U.K., and Italy.

5. There is no wealth effect both on consumption and on the money demand in Korea.

6. In Canada, the slope of the IS is not calculated with technical reason.
Table II·10 Relation between the Size of Portfolio Crowding-out and Wealth Change·induced Shifts in the IS·LM Curves (Temporal Change)

Rate of Loss by Portfolio Crowding-out	1)	Wealth Change-induced Shifts in IS	2)	Wealth Change-induced Shifts in LM
1st year	peak	6th year	1st year	6th year	1st year	6th year
West Germany	0.09	(3)4)	0.10	0.02	(3)4)	0.11	0.19	0.15	(3)4)	0.19	0.19
Japan	0.04	(2)	0.06	0.00	(2)	0.03	0.31	0.13	(2)	0.30	0.64
France	0.00	(3)	0.02	-	-	-	-	0.06	(3)	0.08	0.08
U. K.	Δ0.00	0.01	-	-	-	-	Δ0.03	0.38	0.38
Italy	Δ0.00	0.00	-	-	-	-	Δ0.02	0.22	0.22
Canada	Δ0.00	(monotonic decline)	Δ0.35	0.01	0.44	0.04	0.13	0.13
U. S.	Δ0.03	(“)	Δ0.43	0.10	1.08	0.15	0.77	0.77
Australia	Δ0.02	(“)	Δ0.79	0.03	0.97	0.13	0.17	0.17

(Notes) 1. Rate of loss by portfolio crowding-out is measured by portfolio crowding-out divided by the initial shift.

2. The shift in the IS is measured by percentage change in GNP.

3. The shift in the LM is measured by difference in interest rate.

4. Figures in parentheses indicate the year in which portfolio crowding-out is largest.

5. See notes 4, 5 of Table II·9.
the IS curve shifts leftward. In the two countries where the IS curve shifts rightward, West Germany experiences crowding in because the rightward shift in the IS curve is greater than the leftward shift in the LM curve and Italy experiences crowding out because the leftward shift in the LM curve is the greater (see Table II·11).

The temporal progression in inflation crowding out shows that inflation crowding out grows almost consistently stronger as prices tend to rise and the leftward shifts of both the IS and the LM curves grow more pronounced over time in the eight countries where crowding out occurs in the third year (with the one exception that the effect of the LM curve's leftward shift offsets the effect of the IS curve's rightward shift in Italy). In West Germany, because the IS curve's rightward shift peaks in the fourth year, the scale of crowding in is reduced thereafter, and since the IS curve shifts leftward in the sixth year, crowding out occurs as in the other countries (see Table II·12).

## (6) The Overall Impact of Fiscal Policy and its Determinants

The scale of the fiscal multiplier, which varies considerably from country to country, is determined by the sum of the initial shift and the crowding out as described above. Looking at fiscal multipliers for the third year, they are in excess of 1.5 in Italy, the Republic of Korea, and Canada and between 1.1 and 1.3 in France, the U.K., Australia, and Japan, but 0.8 or less in the United States and West Germany. While such country differences in the fiscal multiplier are partly accounted for by the country differences in the size of crowding out (especially the differences in inflation crowding out), much of the country differences in the fiscal multiplier is due to different initial shifts ascribed to the different propensities to consume, invest, and import (see Table II·13).

With regard to the temporal progression in the impact of fiscal policy, the nine countries covered here are divided into three main groups as shown in Table II·14: (i) the United States, West Germany, and Canada, where the fiscal multiplier declines, (ii) France, Italy, the Republic of Korea, and Australia, where it grows at first (for the first two to five years) but then declines, and (iii) Japan and the United Kingdom, where it grows consistently larger for all six years. Whereas crowding out is the major determinant of the time profile of the declining fiscal multiplier for the U.S., France, and Italy (with this being inflation crowding out in the United States and France and transaction crowding out in Italy), the diminution in the initial shift is the primary cause of the declining fiscal multiplier for the four countries of West Germany, Canada, Australia, and the Republic of Korea. It is interesting to note that crowding out takes place and
Table II·11 Relation between the Size of Inflation Crowding·out and Price Change·induced Shifts in the IS·LM Curves (3rd year)

(1) Initial 1) Shift	(2) Inflation 1) Crowding-out	Rate of Loss by Inflation Crowding-out ((2)/(1))	Price Change -induced Shifts in	Slope of
IS 2)	LM3)	IS	LM
U. S.	1.75	1.02	0.58	Δ 0.98	0.56	Δ 1.63	0.59
Australia	1.49	0.07	0.44	Δ 0.64	0.44	Δ 14.08	0.55
France	1.60	0.18	0.11	Δ 0.18	0.02	Δ 2.94	0.21
Japan	1.48	0.10	0.07	Δ 0.04	0.18	Δ 2.55	0.43
Canada	1.38	0.06	0.04	Δ 0.05	0.00	-	0.0
Korea	1.97	0.07	0.04	Δ 0.05	0.44	Δ 13.55	1.38
U. K.	1.32	0.03	0.02	Δ 0.03	0.01	Δ 14.13	0.20
Italy	2.46	0.04	0.02	0.15	0.40	Δ 1.92	0.38
West Germany	0.79	Δ 0.12	Δ 0.15	0.44	0.17	Δ 0.50	0.09

(Notes) 1. Both the initial shift and inflation crowding-out are measured by percentage change in GNP.

2. The shift in the IS is measured by percentage change in GNP.

3. The shift in the LM is measured by difference in interest rate.
Table II·12 Relation between the Size of Inflation Crowding·out and Price Change induced Shifts in the IS·LM Curves (Temporal Change)

Rate of Loss by 1) Inflation Crowding-out	Price Change 2) -induced Shift in the IS	Price Change 3) -induced Shift in the LM
1st year	6th year	1st year	6th year	1st year	6th year
U. S.	0.08	0.83	$ \Delta $ 0.11	$ \Delta $ 1.25	0.06	0.95
Australia	0.06	0.62	$ \Delta $ 0.07	$ \Delta $ 0.73	0.17	0.59
France	0.02	0.27	$ \Delta $ 0.03	$ \Delta $ 0.46	0.00	0.03
Japan	0.01	0.19	$ \Delta $ 0.00	$ \Delta $ 0.24	0.06	0.21
Canada	$ \Delta $ 0.01	0.18	0.02	$ \Delta $ 0.21	$ \Delta $ 0.00	0.01
Korea	0.00	0.13	$ \Delta $ 0.00	$ \Delta $ 0.22	0.01	0.36
U. K.	0.01	0.04	$ \Delta $ 0.01	$ \Delta $ 0.06	$ \Delta $ 0.00	0.02
Italy	$ \Delta $ 0.01	0.03	0.05	0.31	0.18	0.61
West Germany	$ \Delta $ 0.01	0.43	0.02	$ \Delta $ 0.06	0.01	0.15

(Notes) 1. Rate of loss by inflation crowding-out is measured by inflation crowding-out divided by the initial shift.

2. The shift in the IS is measured by percentage change in GNP.

3. The shift in the LM is measured by difference in interest rate.
Table II·13 Differences in the Fiscal Multipliers among Countries and its Determinants

Fiscal 1) multiplier	Initial Shift	Crowding-out
Sum	Transaction	Portfolio	Inflation
Italy	2.00	2.46	0.46	0.41	$ \Delta $ 0.00	0.04
Korea	1.70	1.97	0.27	0.20	-	0.07
Canada	1.51	1.38	$ \Delta $ 0.13	0.00	$ \Delta $ 0.18	0.06
France	1.29	1.60	0.32	0.11	0.03	0.18
U. K.	1.26	1.32	0.06	0.02	0.01	0.03
Australia	1.22	1.49	0.27	0.06	$ \Delta $ 0.44	0.65
Japan	1.10	1.48	0.38	0.21	0.07	0.10
U. S.	0.75	1.75	1.00	0.47	$ \Delta $ 0.49	1.02
West Germany	0.58	0.79	0.21	0.12	0.21	$ \Delta $ 0.12

(Notes) 1. Real government expenditure is increased by 1% of real GNP (sustained shock).

2. All figures are represented by percentage change in GNP.
Table II·14 Differences in the Fiscal Multipliers among Countries and its Determinants (Temporal Change)

Fiscal Multiplier1)	Initial Shift1)	Crowding·out1)
1st year	Peak	6th year	1st year	6th year	1st year	6th year
U. S.	1.43	monotonic decrease	0.57 (Δ 0.86)3)	1.87	1.61 (Δ 0.26)3)	0.44	1.04 (0.60)3)
West Germany	0.98	monotonic decrease	0.26 (Δ 0.72)	1.31	0.63 (Δ 0.68)	0.33	0.37 (0.04)
Canada	1.61	monotonic decrease	1.45 (Δ 0.16)	1.58	1.24 (Δ 0.34)	Δ 0.03	Δ 0.21 (Δ 0.18)
France	1.37	(2)2)	1.01 (Δ 0.36)	1.41	(2)2)	1.59	0.04	(2)2)	0.58 (0.54)
Italy	1.35	(4)	1.96 (0.61)	1.41	(4)	2.72	0.06	(4)	0.76 (0.70)
Korea	1.19	(3)	1.42 (0.23)	1.24	(3)	1.69	0.05	(3)	0.27 (0.22)
Australia	1.18	(5)	1.39 (0.21)	1.6	(5)	1.19	0.08	(5)	Δ 0.20 (Δ 0.28)
Japan	0.96	monotonic increase	1.24 (0.28)	1.09	1.46	0.13	0.22 (0.09)
U. K.	1.04	monotonic increase	1.47 (0.43)	1.05	1.57	0.01	0.10 (0.09)

(Notes) 1. All Figures are represented by percentage change in GNP.

2. Figures in parentheses indicate the year in which fiscal multiplier is largest,

3. Figures in parentheses indicate the difference between 6th year and 1st year.
accelerates for Japan and the United Kingdom, but that at the same time the fiscal multiplier grows progressively larger with each year for these two countries. The continued expansion in the initial shift is a major factor in the steady growth of the fiscal multiplier. In discussing the temporal progression of the fiscal multiplier, it is thus important to look not only at the temporal progression of crowding out but also at the temporal progression in the initial shift (the simplified Keynesian fiscal multiplier).

Based upon this analysis, we can now account for the major differences in the temporal progressions of fiscal multipliers between Japan and the United States i.e., for the model property that the multiplier gets larger over time in Japan but diminishes sharply in the United States. Crowding out occurs in Japan, and the extent of this crowding out grows larger over time. However, this crowding out is more than offset by the simplified fiscal multiplier (the initial shift), which also grows larger over time. By contrast, crowding out is much more pronounced for the U.S., and this crowding out gets also much greater for the U.S. over time than for Japan, while the simplified fiscal multiplier (the initial shift) diminishes for the U.S. over time. The result is a sharp decrease in the fiscal multiplier for the U.S.

## (7) The Pure LM Curve and the Model-derived LM Curve

Finally, it is useful to look quickly at the relation between the pure LM curve and the LM curve derived from full model simulation of fiscal expansion. As shown in Figure II·1, the change in wealth caused by fiscal policy provokes a shift in the pure LM curve AD to AE (hereinafter referred to as the model-derived LM1) and the change in prices a shift to AB (hereinafter referred to as the model-derived LM2).

Because the changes in wealth and prices both provoke leftward shifts in the LM curve, the curves for model-derived LM1 and model-derived LM2 are progressively steeper than the pure LM curve. Three patterns present themselves (as seen in Table II·15): (i) the change in slope is particularly pronounced in Canada and West Germany, where the pure LM is very flat, (ii) the slope of model-derived LM2 is over twice as steep as that for the pure LM curve in the United States and Australia, where the LM curve's leftward shift resulting from both wealth and price increases is particularly sharp, and in Japan, where there is considerable LM curve shift resulting from the increase in wealth, and (iii) there is little change in the other four countries.
Table II·15 Relation between the Slope of the Model·derived LM Curves and the Shifts in the IS·LM Curves Caused by Wealth and Price Changes (3rd year)

Slope of the LM $ ^{1)} $	Shifts caused by wealth change	Shifts caused by price change
Pure LM	Model-derived LM 1	Model-derived LM 2	I S $ ^{2)} $	LM $ ^{3)} $	I S $ ^{2)} $	LM $ ^{3)} $
Canada	0.0	0.05 (-) $ {}^{4)} $	0.06 (1.20) $ {}^{5)} $	0.19	0.08	$ \Delta $ 0.05	0.00
West Germany	0.09	0.48 (5.33)	0.70 (1.46)	0.11	0.19	0.44	0.17
U. K.	0.20	0.29 (1.45)	0.29 (1.00)	-	0.12	$ \Delta $ 0.03	0.01
France	0.21	0.26 (1.24)	0.28 (1.08)	-	0.08	$ \Delta $ 0.18	0.02
Italy	0.38	0.40 (1.05)	0.60 (1.50)	-	0.04	0.15	0.40
Japan	0.43	0.78 (1.81)	0.98 (1.26)	0.08	0.42	$ \Delta $ 0.04	0.18
Australia	0.55	0.67 (1.22)	1.12 (1.67)	0.47	0.23	$ \Delta $ 0.64	0.44
U. S.	0.59	0.78 (1.32)	1.91 (2.45)	0.72	0.38	$ \Delta $ 0.98	0.56
Korea	1.38	-	1.65 (1.20)	-	-	$ \Delta $ 0.05	0.44

(Notes) 1. The slope of the LM curve is measured by deviation from baseline in interest rate divided by percentage deviation from baseline in GNP.

2. The shift in the IS is measured by percentage change in GNP.

3. The shift in the LM is measured by difference in interest rate.

4. Figures in parentheses are the slope of the Model-derived LM 1 divided by the slope of the Pure LM.

5. Figures in parentheses are the slope of the Model-derived LM 2 divide by the slope of the Model1derived LM 1.

6. See notes 4, 5 of Table II - 9.
III. The Aggregate Demand and Aggregate Supply Curves and the Impact of Fiscal Policy

1. The Slope of the Aggregate Demand Curve and its Determinants

## (1) Analytical Framework

The aggregate demand (AD) and aggregate supply (AS) curves can be derived from the fiscal policy simulation. Figure III·1 shows the framework for this in conjunction with the IS and LM, with the bottom half of the figure being the same as Figure II·1. With an increase in government expenditures, the AD curve shifts from $ AD_{0} $ to $ AD_{1} $ (adding transaction crowding out to the IS initial shift). With the addition of portfolio crowding out or crowding in, the AD curve shifts from $ AD_{1} $ to $ AD_{2} $ , finally coming to rest at $ AD_{2} $ . If the AS curve is perfectly elastic, GNP would be expected to increase to E, but so long as inflation crowding out occurs, prices go up and GNP decreases, finally coming to rest at equilibrium point B. Thus the slope of the AD curve can be derived by connecting the two points B (derived from analysis of the IS and LM curves in section II [the final equilibrium point taking account of inflation crowding out]) and E (taking account of portfolio crowding out or crowding in). The AS curve is then derived by connecting this point B with the initial equilibrium point A.

## (2) The Slope of the Aggregate Demand Curve and its Determinants

As is clear from Figure III·1, the determinants for the slope of the AD are, seen in correspondence to the IS·LM framework, that the AD will be flatter (i) the greater the leftward shift in the IS resulting from price increases, (ii) the greater the LM leftward shift, (iii) the flatter the IS curve, and (iv) the flatter the LM curve.

Table III·1 shows the AD slope and its determinants in the third year. As seen, the AD slope is generally explainable by the extent of the shift in the IS curve resulting from price increases. As seen in section II, the IS curve shifts rightward for West Germany and Italy with price increases. As a result, the AD curve has a positive slope for West Germany, which is abnormal, but has a normal (albeit very steep) slope for Italy because the impact of the LM leftward shift is great. Grouping the countries according to the steepness of their AD slopes, the three categories found are: (i) the United States and Australia, which have very flat AD curves, (ii) France, the United Kingdom, Japan, and the Republic of Korea, which have rather flat AD curves, and (iii) Canada, Italy, and West Germany, which have steep AD curves.
(Notes) 1. GNP and price are measured by percentage change and interest rate is measured by difference.

2. Subscript 0 means standard case, and the others show cases after fiscal shock.

3. For details, see III·1·(1) in the paper.
Table III·1 Slope of the Aggregate Demand(AD) Curve and its Determinants (3rd year)

1)	Shifts in	Slope of4)
Slope of the AD	I S2)	LM3)	I S	LM
U. S.	Δ 1.1	Δ 0.85	0.49	Δ 1.63	0.59
Australia	Δ 1.2	Δ 0.73	0.50	Δ 14.08	0.55
France	Δ 3.4	Δ 0.30	0.03	Δ 2.94	0.21
U. K.	Δ 4.9	Δ 0.47	0.12	Δ 14.13	0.20
Japan	Δ 4.9	Δ 0.09	0.39	Δ 2.55	0.43
Korea	Δ 5.1	Δ 0.14	1.21	Δ 13.55	1.38
Canada	Δ 8.3	Δ 0.10	0.02	-	0.00
Italy	Δ 22.6	0.14	0.36	Δ 1.92	0.38
West Germany	5.5	0.71	0.28	Δ 0.50	0.09

(Notes) 1. The slope of the AD is measured by percentage change in GNP deflator divided by percentage change in GNP.

2. The shift in the IS is measured by percentage change in GNP normalized by percentage change in GNP deflator.

3. The shift in the LM is measured by difference in interest rate normalized by percentage change in GNP deflator.

4. The slope of the IS·LM is measured by difference in interest rate divided by percentage change in GNP.

5. $ \Delta $ indicates minus (this is the same in subsequent tables)
The temporal progressions for the AD curves show four broad groupings: (i) Japan, France, and the United Kingdom, where it becomes consistently flatter, (ii) the United States and Australia, where it becomes flatter until the fourth year and then turns steep, (iii) the Republic of Korea and Canada, where it starts out steep for the first few years and then turns flat, and (iv) West Germany and Italy, where it starts out an inverse slope but then shifts to a normal (negative) slope (see Table III·2). These differences can be explained primarily with the temporal changes in the IS shift.

### 2. The Slope of the Aggregate Supply Curve and its Determinants

## (1) Analytical Framework

This section examines both the AS curve derived from the full model simulation (hereinafter the model-derived AS curve) and the AS curve derived from the supply block simulation (hereinafter the pure AS curve).

As seen in Figure III·1, the model-derived AS curve is obtained by connecting points A and B derived from full-model simulation. Because the AS curve tracks the combination of anticipated price levels and optimum output levels, the procedure for deriving the pure AS should be to vary the prices exogenously and then to calculate the corresponding GNP levels. However, given the difficulties of this derivation with the EPA model, the procedure followed was that of varying GNP (including its components) exogenously and then calculating the corresponding price levels.

## (2) The Slope of the Pure AS Curve and its Determinants

The supply block of the EPA model can be shown in the following simplified form.

(+) (-)

1. Labor demand function: LE= f(GNP,W/P)

(1'. Unemployment rate (definition): UR = $ \frac{LE - LE}{LF} $ )

$ (+)(-) $ $ (+) $

2. Wage function: $ w = f(P, UR, GNP/LE) $

(+ ) (- ) (+)

3. Price function: $ P = f(w, GNP/LE, CU) $

where LF is the labor force, CU the capacity utilization rate, and $ \cdot $ indicates the rate of change)
Table III·2 Slope of the AD Curve and its Determinants (Temporal Change)

Slope of the AD 1)	Shift in the IS 2)	Shift in the LM 3)
1st year	Flattest (or steep est)year	6th year	1st year	6th year	1st year	6th year
U. S.	Δ 2.27	(4)4	Δ 1.13	Δ 1.27	Δ 0.33	(4)4	Δ 0.87	Δ 0.74	(4)4
Australia	Δ 5.07	(4)	Δ 1.14	Δ 1.42	Δ 0.16	(4)	Δ 0.76	Δ 0.59	(4)
France	Δ 10.58	monotonously
flat	Δ 2.02	Δ 0.09	Δ 0.55	0.02	0.03
U. K.	Δ 9.18	(“)	Δ 3.88	0.14	Δ 0.33	0.11	0.09
Japan	Δ 15.12	(“)	Δ 2.62	Δ 0.02	Δ 0.35	0.38	0.30
Korea	Δ 1.98	(2)	Δ 9.93	Δ 2.05	Δ 0.05	(2)	Δ 0.45	1.09	(2)
(3)	(3)	(3)
Canada	Δ 4.17	Δ 8.26	Δ 4.05	Δ 0.26	Δ 0.10	Δ 0.22	0.01	0.02	0.01
Italy	29.70	Δ 19.02	0.08	0.19	0.30	0.36
West Germany	6.65	Δ 4.87	0.26	Δ 0.04	0.07	0.11

(Notes) 1.2.3. See notes of Table III.1.

4. Figures in parentheses are the year in which the slope of the AD is flattest (or steepest).