Is Government Spending at the Zero Lower Bound Desirable?

Florin Bilbiie, Tommaso Monacelli and Roberto Perotti

American Economic Journal: Macroeconomics, 2019, vol. 11, issue 3, 147-73

Abstract: We build a medium-scale DSGE model and calibrate it to fit the main macroeconomic variables during the US Great Recession. Using it to evaluate the welfare effects of increasing government consumption at the zero lower bound beyond what was actually observed in the data, we reach three main results. First, the increase in government consumption after 2008, albeit small in present value terms, was close to optimal. Second, frontloading the same stimulus would have been welfare-improving. Third, larger welfare effects occur in our model for parameter values implying either large welfare costs of modest recessions (e.g., high consumption curvature), or outright large recessions.

JEL-codes: E12 E32 E43 E62 H50 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/mac.20150229
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Is Government Spending at the Zero Lower Bound Desirable? (2015)
Working Paper: Is Government Spending at the Zero Lower Bound Desirable? (2014)
Working Paper: Is Government Spending at the Zero Lower Bound Desirable? (2014)
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