TY - JOUR
T1 - When is the government spending multiplier large?
AU - Christiano, Lawrence
AU - Eichenbaum, Martin
AU - Rebelo, Sergio
PY - 2011/2
Y1 - 2011/2
N2 - 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 the fraction of government spending that occurs while the nominal interest rate is zero, the larger 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.
AB - 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 the fraction of government spending that occurs while the nominal interest rate is zero, the larger 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.
UR - http://www.scopus.com/inward/record.url?scp=79953682799&partnerID=8YFLogxK
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U2 - 10.1086/659312
DO - 10.1086/659312
M3 - Article
AN - SCOPUS:79953682799
VL - 119
SP - 78
EP - 121
JO - Journal of Political Economy
JF - Journal of Political Economy
SN - 0022-3808
IS - 1
ER -