When is the government spending multiplier large?

Lawrence Christiano, Martin Eichenbaum and Sergio Rebelo ()

No 15394, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We argue that the government-spending multiplier can be much larger than one when the zero lower bound on the nominal interest rate binds. The larger is the fraction of government spending that occurs while the nominal interest rate is zero, the larger is the value of the multiplier. After providing intuition for these results, we investigate the size of the multiplier in a dynamic, stochastic, general equilibrium model. In this model the multiplier effect is substantially larger than one when the zero bound binds. Our model is consistent with the behavior of key macro aggregates during the recent financial crisis.

JEL-codes: E62 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-cba and nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (245)

Published as Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78 - 121.

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Related works:
Journal Article: When Is the Government Spending Multiplier Large? (2011)
Working Paper: When is the government spending multiplier large? (2010)
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