 Government expenditure multiplier under the zero lower bound: The role of public investmentThe Journal of Economic Asymmetries, 2016, vol. 14, issue PA, 103-111 Abstract: Under the zero lower bound the stimulating policies are conducted mostly by the fiscal authorities due to inefficiency of the traditional monetary policy. Recent research showed that in the borrower-saver framework the government expenditure multiplier can be significantly higher under the zero lower bound than under a positive interest rate. This paper explores the fiscal multiplier in the excess-savings liquidity trap in the extended framework which incorporates productive along with utility-enhancing government expenditures. The share of public investment in total expenditures and its productivity decrease the multiplier under the zero lower bound and increase it under a positive interest rate. In the former case, the higher share of liquidity-constrained borrowers weakens the negative effect of public investment, with an opposite impact in the latter case. An assumption about the two types of public expenditures intensifies the non-linear impact of the borrowers' share on the multiplier: the multiplier can become negative under zero lower bound for the sufficiently high share of borrowers. Keywords: Government expenditure multiplier; Zero lower bound; Liquidity-constraint; Public investment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:14:y:2016:i:pa:p:103-111 DOI: 10.1016/j.jeca.2016.07.007 Access Statistics for this article The Journal of Economic Asymmetries is currently edited by A.G. Malliaris More articles in The Journal of Economic Asymmetries from Elsevier |
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