Is Government Spending at the Zero Lower Bound Desirable? / Florin O. Bilbiie, Tommaso Monacelli, Roberto Perotti.

Format:

Book

Author/Creator:

Bilbiie, Florin O.

Contributor:

National Bureau of Economic Research.

Monacelli, Tommaso.

Perotti, Roberto.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20687.

NBER working paper series no. w20687

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

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.

Notes:

Print version record

November 2014.