The effects of fiscal policy at the effective lower bound

D.A.R. Bonam

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We estimate the effects of government spending shocks during prolonged episodes of low interest rates, which we consider as proxy for the effective lower bound (ELB). Using a panel VAR model for 17 advanced countries, we find that both the government consumption and investment multipliers are significantly higher, and exceed unity, when interest rates are persistently low. Distinguishing between construction- and equipment-related government investments, we find that only the former raises output by significantly more when the ELB binds. This result can be explained by existing New Keynesian models featuring time-to-build constraints on government investment.
Original languageUndefined/Unknown
JournalMacroeconomic Dynamics
DOIs
Publication statusPublished - 14 Aug 2020

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