Small and Orthodox Fiscal Multipliers at the Zero Lower Bound

49 Pages Posted: 22 Mar 2015

See all articles by R. Braun

R. Braun

Federal Reserve Bank of Atlanta

Lena Koerber

London School of Economics & Political Science (LSE)

Yuichiro Waki

University of Tokyo

Date Written: December 2013

Abstract

Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that the answer is yes. New evidence provided here suggests that the answer is often no. For a broad range of empirically relevant parameterizations of the Rotemberg model of costly price adjustment, the government purchase multiplier is about one or less, and the response of hours to a tax cut is either negative or close to zero.

Keywords: monetary policy; zero interest rate; fiscal multipliers

JEL Classification: E05, E06

Suggested Citation

Braun, R. and Koerber, Lena and Waki, Yuichiro, Small and Orthodox Fiscal Multipliers at the Zero Lower Bound (December 2013). FRB Atlanta Working Paper No. 2013-13, Available at SSRN: https://ssrn.com/abstract=2579861 or http://dx.doi.org/10.2139/ssrn.2579861

R. Braun (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Lena Koerber

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Yuichiro Waki

University of Tokyo

Hongo 7-3-1
Bunkyo-ku
Tokyo 113-0033, Tokyo
Japan

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