Is Government Spending at the Zero Lower Bound Desirable? /
Bilbiie, Florin O.
Is Government Spending at the Zero Lower Bound Desirable? / Florin O. Bilbiie, Tommaso Monacelli, Roberto Perotti. - Cambridge, Mass. National Bureau of Economic Research 2014. - 1 online resource: illustrations (black and white); - NBER working paper series no. w20687 . - Working Paper Series (National Bureau of Economic Research) no. w20687. .
November 2014.
Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. We illustrate this point in the context of a standard New Keynesian model. In that model, 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.
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Mode of access: World Wide Web.
Is Government Spending at the Zero Lower Bound Desirable? / Florin O. Bilbiie, Tommaso Monacelli, Roberto Perotti. - Cambridge, Mass. National Bureau of Economic Research 2014. - 1 online resource: illustrations (black and white); - NBER working paper series no. w20687 . - Working Paper Series (National Bureau of Economic Research) no. w20687. .
November 2014.
Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. We illustrate this point in the context of a standard New Keynesian model. In that model, 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.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.