When is the government spending multiplier large?
We argue that the government-spending multiplier can be much larger than one when the zero lower bound on the nominal interest rate binds. The larger is the fraction of government spending that occurs while the nominal interest rate is zero, the larger is the value of the multiplier. After providing intuition for these results, we investigate the size of the multiplier in a dynamic, stochastic, general equilibrium model. In this model the multiplier effect is substantially larger than one when the zero bound binds. Our model is consistent with the behavior of key macro aggregates during the recent financial crisis.
|Date of creation:||Oct 2009|
|Date of revision:|
|Publication status:||published as Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78 - 121.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. VÃ©gh Gramont, 2011.
"How Big (Small?) Are Fiscal Multipliers?,"
IMF Working Papers
11/52, International Monetary Fund.
- Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh, 2010. "How Big (Small?) are Fiscal Multipliers?," NBER Working Papers 16479, National Bureau of Economic Research, Inc.
- Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh, 2010. "How Big (Small?) are Fiscal Multipliers?," CEP Discussion Papers dp1016, Centre for Economic Performance, LSE.
- Janice Eberly & Sergio Rebelo & Nicolas Vincent, 2008.
"Investment and Value: A Neoclassical Benchmark,"
NBER Working Papers
13866, National Bureau of Economic Research, Inc.
- Janice Eberly & Sergio Rebelo & Nicolas Vincent, 2008. "Investment and Value: A Neoclassical Benchmark," Cahiers de recherche 08-03, HEC Montréal, Institut d'économie appliquée.
- Janice Eberly & Sergio Rebelo & Nicolas Vincent, 2009. "Investment and Value: a Neoclassical Benchmark," Cahiers de recherche 0908, CIRPEE.
- Eberly, Janice & Rebelo, Sérgio & Vincent, Nicolas, 2008. "Investment and Value: A Neoclassical Benchmark," CEPR Discussion Papers 6737, C.E.P.R. Discussion Papers.
- R. Anton Braun & Yuichiro Waki, 2005.
"Monetary Policy during Japan's Lost Decade,"
CARF-F-035, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15394. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.