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.
File(s): File format is application/pdf http://www.frbatlanta.org/documents/cqer/publicationscq/cqerwp/cqer_wp10-01.pdf
Provider: Federal Reserve Bank of Atlanta
Part of Series: FRB Atlanta CQER Working Paper
Publication Date: 2010