FISCAL MULTIPLIERS AT THE ZERO LOWER BOUND: THE ROLE OF GOVERNMENT SPENDING PERSISTENCE

2019 ◽  
pp. 1-28 ◽  
Author(s):  
Phuong V. Ngo
Keyword(s):  
Lower Bound ◽  
Government Spending ◽  
New Keynesian ◽  
Zero Lower Bound ◽  
Role Of Government ◽  
Fiscal Multipliers ◽  
The Great Recession ◽  
Resource Cost ◽  
The Government

In this paper, I examine the role of government spending persistence on fiscal multipliers at the zero lower bound (ZLB) in a more realistic environment while keeping the model simple enough to identify mechanisms driving the result. In particular, I build on a standard dynamic New Keynesian (DNK) model with an occasionally binding ZLB and Rotemberg pricing with rebates, where the probability of hitting the ZLB and the government purchase shock are in line with US data. Moreover, I compute the multiplier in a state that mimics the Great Recession. The main findings of the paper are as follows: (1) the multiplier is non-monotonic in the persistence of government spending while the economy is at the ZLB; (2) given the persistence estimated from US data, the multiplier is 1.25; and (3) in the framework with perfect foresight or with aggregate resource cost for adjusting prices, the multiplier is around 1 or less.

scholarly journals Resolving New Keynesian Anomalies with Wealth in the Utility Function

2019 ◽  
pp. 1-46 ◽  
Author(s):  
Pascal Michaillat ◽  
Emmanuel Saez
Keyword(s):  
Lower Bound ◽  
Utility Function ◽  
Social Status ◽  
Government Spending ◽  
Marginal Utility ◽  
New Keynesian ◽  
Zero Lower Bound ◽  
Forward Guidance ◽  
Keynesian Model ◽  
Low Levels

At the zero lower bound, the New Keynesian model predicts that output and inflation collapse to implausibly low levels, and that government spending and forward guidance have implausibly large effects. To resolve these anomalies, we introduce wealth into the utility function; the justification is that wealth is a marker of social status, and people value status. Since people partly save to accrue social status, the Euler equation is modified. As a result, when the marginal utility of wealth is sufficiently large, the dynamical system representing the zero-lower-bound equilibrium transforms from a saddle to a source—which resolves all the anomalies.

FISCAL MULTIPLIERS IN A MONETARY UNION UNDER THE ZERO–LOWER–BOUND CONSTRAINT

2014 ◽  
Vol 19 (6) ◽  
pp. 1171-1194 ◽  
Author(s):  
Stefanie Flotho
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Central Bank ◽  
Monetary Union ◽  
Government Spending ◽  
Taylor Rule ◽  
Home Bias ◽  
Nominal Interest Rate ◽  
Zero Lower Bound ◽  
Fiscal Multipliers

This paper analyzes government spending multipliers in a two-country model of a monetary union with price stickiness and home bias in consumption where monetary policy is constrained by the zero lower bound (ZLB) on the nominal interest rate. Government spending multipliers under this constraint are computed and compared with fiscal multipliers in normal times, that is, where the central bank sets the nominal interest rate via a Taylor rule. The trade elasticity and the parameter measuring home bias in consumption play an important role in determining the size of the multiplier. The multipliers are not necessarily large under the ZLB constraint. However, compared with the fiscal multipliers when the central bank sets the nominal interest rate according to a Taylor rule, the multipliers under the ZLB are bigger. Moreover, the persistence parameter of the binding ZLB plays a crucial role.

scholarly journals Geographic Differences of Individual Views toward the Role of Government

2020 ◽  
Vol 37 (2) ◽  
pp. 71-96
Author(s):  
Daniel Fudge
Keyword(s):  
Social Security ◽  
Rural Areas ◽  
Government Spending ◽  
Urban Areas ◽  
Public Services ◽  
The United States ◽  
Role Of Government ◽  
Government Involvement ◽  
The Government

Government, through the provision of public services, plays an integral role in the lives of American citizens.  In consequence, public opinion of government involvement has been consistently measured through the use of national surveys in order to better evaluate the public’s reaction to specific public policies.  While measuring of aggregate public opinions on government involvement is valuable, there are certainly differences across various groups of Americans.  The United States may be divided when it comes to partisanship and ideology, but perhaps there are also significant divisions between Americans based on their geography, or “place”.  Using data from the American National Election Survey from 1994-2008, this study examines the differences in opinion on government spending towards public services, welfare programs, and Social Security.  Rooted in the idea that different “places” harbor varying degrees of support for the government, I hypothesize that the role of government is viewed differently between urban and rural America, further demonstrating that America experiences an urban-rural division in regard to perceptions of American politics.  The findings demonstrate that ideology drives Americans’ support for these specific policies and that “place” can serve as a conditioning effect on the standard ideological view.  Specifically, liberals living in rural areas are less supportive of government spending than their liberal counterparts living in more urban areas.  Additionally, rural liberals are less supportive of welfare spending; however, are more supportive of Social Security than liberals from urban areas.

scholarly journals Fiscal Multipliers at the Zero Lower Bound: The Role of Policy Inertia

2018 ◽  
Vol 50 (1) ◽  
pp. 155-172 ◽  
Author(s):  
TIMOTHY S. HILLS ◽  
TAISUKE NAKATA
Keyword(s):  
Lower Bound ◽  
Zero Lower Bound ◽  
Fiscal Multipliers

The Young, the Old, and the Government: Demographics and Fiscal Multipliers

2021 ◽  
Vol 13 (4) ◽  
pp. 110-141
Author(s):  
Henrique S. Basso ◽  
Omar Rachedi
Keyword(s):  
Open Economy ◽  
Government Spending ◽  
Population Aging ◽  
Supply And Demand ◽  
New Keynesian ◽  
Fiscal Multipliers ◽  
Keynesian Model ◽  
The Us ◽  
The Government ◽  
Labor Supply And Demand

We document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1–1.9 in the interquartile range. A parsimonious life cycle open economy New Keynesian model with credit market imperfections and age-specific differences in labor supply and demand explains 87 percent of the relationship between local multipliers and demographics. The model implies that the US population aging between 1980 and 2015 caused a 38 percent drop in national government spending multipliers. (JEL D15, E12, E24, E62, J11, J22, J23)

scholarly journals THE EFFECTS OF FISCAL POLICY AT THE EFFECTIVE LOWER BOUND

2020 ◽  
pp. 1-37 ◽  
Author(s):  
Dennis Bonam ◽  
Jakob De Haan ◽  
Beau Soederhuizen
Keyword(s):  
Lower Bound ◽  
Interest Rates ◽  
Government Spending ◽  
New Keynesian ◽  
Panel Var ◽  
Government Investment ◽  
Time To Build ◽  
Low Interest Rates ◽  
New Keynesian Models ◽  
The Government

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.

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