Is Government Spending at the Zero Lower Bound Desirable?
57 Pages Posted: 21 Oct 2014
Date Written: October 2014
Abstract
Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. 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.
Keywords: government spending multiplier, welfare, zero lower bound
JEL Classification: D91, E21, E62
Suggested Citation: Suggested Citation
Bilbiie, Florin Ovidiu and Monacelli, Tommaso and Perotti, Roberto, Is Government Spending at the Zero Lower Bound Desirable? (October 2014). CEPR Discussion Paper No. DP10210, Available at SSRN: https://ssrn.com/abstract=2512738
Do you have negative results from your research you’d like to share?
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.