DP11633 Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan

Author(s):	Wataru Miyamoto, Thuy Lan Nguyen, Dmitriy Sergeyev
Publication Date:	November 2016
Keyword(s):	fiscal stimulus, government spending, multiplier, zero lower bound
JEL(s):	E32, E5, E62
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=11633

Using a rich data set 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 argue that these results are not driven by the amount of slack in the economy. A simple New Keynesian model can reproduce some features of our empirical findings if the ZLB period is caused by a deflationary trap and government spending is not too persistent.