Working Paper

When is the government spending multiplier large?


Abstract: We argue that the government spending multiplier can be very large when the nominal interest rate is constant. We focus on a natural case in which the interest rate is constant, which is when the zero lower bound on nominal interest rates binds. For the economies that we consider it is optimal to increase government spending in response to shocks that make the zero bound binding.

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Authors

    Eichenbaum, Martin

    Rebelo, Sergio

    Christiano, Lawrence J.

Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta CQER Working Paper

Publication Date: 2010

Number: 2010-01