scholarly journals Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan

2018 ◽  
Vol 10 (3) ◽  
pp. 247-277 ◽  
Author(s):  
Wataru Miyamoto ◽  
Thuy Lan Nguyen ◽  
Dmitriy Sergeyev
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Government Spending ◽  
Private Consumption ◽  
Nominal Interest Rate ◽  
Zero Lower Bound ◽  
Output Multiplier ◽  
Expected Inflation ◽  
Normal Period ◽  
New Evidence

Using a rich dataset on government spending forecasts in Japan, we provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 in the ZLB period and 0.6 outside of it. We estimate that government spending shocks increase both private consumption and investment during the ZLB period, but crowd them out in the normal period. There is evidence that expected inflation increases more in the ZLB period than in the normal period. (JEL E21, E22, E23, E31, E43, E52, E62)

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 Imperfect Credibility and the Zero Lower Bound on the Nominal Interest Rate

2010 ◽  
Vol 2010 (1001) ◽  
pp. 1-38 ◽  
Author(s):  
Martin Bodenstein ◽  
◽  
James Hebden ◽  
Ricardo Nunes
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Nominal Interest Rate ◽  
Zero Lower Bound ◽  
Imperfect Credibility

The Case for Imposing Cashlessness: A Review Article

2018 ◽  
Vol 56 (4) ◽  
pp. 1587-1591
Author(s):  
Neil Wallace
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
Lower Bound ◽  
Central Bank ◽  
Review Article ◽  
Zero Lower Bound ◽  
Illegal Activity ◽  
The Interest Rate

In The Curse of Cash, Rogoff (2016) makes two arguments. (i) Large denominations of currency are primarily used for illegal activity. Therefore, eliminating them would have benefits that far outweigh the costs in terms of lost seigniorage. (ii) The zero lower bound (ZLB) on the interest rate implied by the possibility of holding large amounts of currency is a costly constraint on central-bank policy. The best way to eliminate the ZLB is to eliminate all but small denominations of currency, ten dollars and lower, and to have those be in the form of coins. The style of the book, no models and no symbols, works fairly well for (i), but not so well for (ii). For (ii), the author is unclear about a crucial matter: what fiscal policy accompanies alternative interest-rate settings chosen by the central bank? ( JEL E26, E42, E43, E52, E58, E62)

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.

scholarly journals Is Government Spending at the Zero Lower Bound Desirable?

2019 ◽  
Vol 11 (3) ◽  
pp. 147-173 ◽  
Author(s):  
Florin O. Bilbiie ◽  
Tommaso Monacelli ◽  
Roberto Perotti
Keyword(s):  
Lower Bound ◽  
Great Recession ◽  
Government Spending ◽  
Welfare Effects ◽  
Zero Lower Bound ◽  
Present Value ◽  
Government Consumption ◽  
High Consumption ◽  
The Us ◽  
Parameter Values

We build a medium-scale DSGE model and calibrate it to fit the main macroeconomic variables during the US Great Recession. Using it to evaluate the welfare effects of increasing government consumption at the zero lower bound beyond what was actually observed in the data, we reach three main results. First, the increase in government consumption after 2008, albeit small in present value terms, was close to optimal. Second, frontloading the same stimulus would have been welfare-improving. Third, larger welfare effects occur in our model for parameter values implying either large welfare costs of modest recessions (e.g., high consumption curvature), or outright large recessions. (JEL E12, E32, E43, E62, H50)

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