NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Is Government Spending at the Zero Lower Bound Desirable?

Florin O. Bilbiie, Tommaso Monacelli, Roberto Perotti

NBER Working Paper No. 20687
Issued in November 2014
NBER Program(s):Monetary Economics, Public Economics

Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. We illustrate this point in the context of a standard New Keynesian model. In that model, when government spending provides direct utility to the household, its optimal level is at most 0.5-1 percent of GDP for recessions of -4 percent; the numbers are higher for deeper recessions. When spending does not provide direct utility, it is generically welfare-detrimental: it should be kept unchanged at a long run-optimal value.

download in pdf format
   (419 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20687

Users who downloaded this paper also downloaded* these:
Ramey and Zubairy w20719 Government Spending Multipliers in Good Times and in Bad: Evidence from U.S. Historical Data
Eggertsson What Fiscal Policy is Effective at Zero Interest Rates?
Perotti w20179 Defense Government Spending Is Contractionary, Civilian Government Spending Is Expansionary
Stiglitz w20670 Unemployment and Innovation
Ball and Mazumder w20715 A Phillips Curve with Anchored Expectations and Short-Term Unemployment
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us