TY - JOUR
T1 - The effects of fiscal policy at the effective lower bound
AU - Bonam, D.A.R.
PY - 2020/8/14
Y1 - 2020/8/14
N2 - 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.
AB - 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.
UR - http://dx.doi.org/10.1017/s1365100520000097
U2 - 10.1017/s1365100520000097
DO - 10.1017/s1365100520000097
M3 - Article
SN - 1365-1005
JO - Macroeconomic Dynamics
JF - Macroeconomic Dynamics
ER -
