When is the Government Spending Multiplier Large?
Federal Reserve Bank of Atlanta CQER Working Paper No. 10-01
55 Pages Posted: 23 Sep 2010
Date Written: August 2010
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.
Keywords: multiplier, zero bound, deflation spiral
JEL Classification: E3, E4, E5, H3
Suggested Citation: Suggested Citation