Title: The government spending multiplier at the zero lower bound: Evidence from the United States
Authors: Matteo Fragetta - University of Salerno (Italy) [presenting]
Emanuel Gasteiger - Freie Universitat Berlin (Germany)
Mario Di Serio - University of Salerno (Italy)
Abstract: How large is the government spending multiplier in normal times and how large is it when monetary policy is constrained by the zero interest rate lower bound (ZLB)? It is frequently argued that in such a situation an increase in government spending is even more effective. A growing theoretical literature examines this claim. Likewise, there is an emerging literature developing reasonable theories that suggest that the government spending multiplier at the ZLB is 1 or below, and lower than in times without the ZLB binding. The objective is to provide further state-dependent evidence from the United States on the size of the aggregate government spending multiplier at the ZLB. Independent from the specification, our results show that multipliers at the ZLB always exceed their counterparts away from the ZLB. Thus, our results are qualitatively and quantitatively consistent with the claim that increases in government spending are even more effective at the ZLB.