Is Government Spending at the Zero Lower Bound Desirable?

Florin Bilbiie, Tommaso Monacelli and Roberto Perotti ()

No 20687, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. We illustrate this point in the context of a standard New Keynesian model. In that model, when government spending provides direct utility to the household, its optimal level is at most 0.5-1 percent of GDP for recessions of -4 percent; the numbers are higher for deeper recessions. When spending does not provide direct utility, it is generically welfare-detrimental: it should be kept unchanged at a long run-optimal value.

JEL-codes: D91 E21 E62 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-dge and nep-mac
Note: ME PE
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Citations: View citations in EconPapers (25)

Published as Florin O. Bilbiie & Tommaso Monacelli & Roberto Perotti, 2019. "Is Government Spending at the Zero Lower Bound Desirable?," American Economic Journal: Macroeconomics, vol 11(3), pages 147-173.

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Related works:
Journal Article: Is Government Spending at the Zero Lower Bound Desirable? (2019)
Working Paper: Is Government Spending at the Zero Lower Bound Desirable? (2015)
Working Paper: Is Government Spending at the Zero Lower Bound Desirable? (2014)
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