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When is the Government Spending Multiplier Large?Lawrence J. ChristianoNorthwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER) Martin EichenbaumNorthwestern University; National Bureau of Economic Research (NBER) Sergio Rebeloaffiliation not provided to SSRN August 2010 Federal Reserve Bank of Atlanta CQER Working Paper No. 10-01 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.
Number of Pages in PDF File: 55 Keywords: multiplier, zero bound, deflation spiral JEL Classification: E3, E4, E5, H3 working papers seriesDate posted: September 23, 2010Suggested CitationContact Information
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