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

Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan† AbstractUsing 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) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

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

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20170131
Publisher site
See Article on Publisher Site

Abstract

AbstractUsing 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)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jul 1, 2018

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