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Title: Is Government Spending at the Zero Lower Bound Desirable?

Author(s): Florin Ovidiu Bilbiie, Tommaso Monacelli and Roberto Perotti

Publication Date: October 2014

Keyword(s): government spending multiplier, welfare and zero lower bound

Programme Area(s): International Macroeconomics

Abstract: Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. 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.

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Bibliographic Reference

Bilbiie, F, Monacelli, T and Perotti, R. 2014. 'Is Government Spending at the Zero Lower Bound Desirable?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10210