The Effects of Fiscal Policy at the Effective Lower Bound

42 Pages Posted: 8 Aug 2017

See all articles by Dennis Bonam

Dennis Bonam

VU University Amsterdam

Jakob de Haan

University of Groningen - Faculty of Economics and Business; De Nederlandsche Bank; CESifo (Center for Economic Studies and Ifo Institute)

Beau Soederhuizen

Nyenrode Business University

Date Written: May 5, 2017

Abstract

We estimate the effects of government consumption and investment shocks during prolonged episodes of low interest rates, which we consider as proxy for the effective lower bound. Using a panel VAR model for 17 advanced countries, in which we include real government spending, output, inflation, and the real interest rate, we find that both the cumulative government consumption and investment multipliers are significantly higher (and exceed unity) when interest rates are persistently low. These results are robust for using different threshold values for the nominal interest rate or the length of the period with low interest rates to proxy the ELB.

Keywords: Fiscal Multipliers, Effective Lower Bound, Panel VAR

JEL Classification: E6, E62, E65

Suggested Citation

Bonam, Dennis and de Haan, Jakob and Soederhuizen, Beau, The Effects of Fiscal Policy at the Effective Lower Bound (May 5, 2017). De Nederlandsche Bank Working Paper No. 565. Available at SSRN: https://ssrn.com/abstract=3014790 or http://dx.doi.org/10.2139/ssrn.3014790

Dennis Bonam (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Jakob de Haan

University of Groningen - Faculty of Economics and Business ( email )

PO Box 800
Groningen, 9700 AV
Netherlands
+31 0 50 3633706 (Fax)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Beau Soederhuizen

Nyenrode Business University ( email )

Straatweg 25
P.O. Box 130
Breukelen, 3620 AC
Netherlands

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