Working Paper: Fiscal tools at the zero lower bound

Working Paper - December 2017 - No. 124

Authors Adolfsen, Jakob
Subject Monetary policy; Economic policy; Financial markets; Housing finance; Interest and exchange rates; Models; Public finances and fiscal policy; Recent economic and monetary trends; USA
Type Working paper
Year 2017
Published 22 December 2017
The paper analyses the effectiveness of fiscal tools at the zero lower bound (ZLB) in a non-linear New Keynesian DSGE model. Although the government spending multiplier increases at the ZLB, its size depends strongly on rational expectations to the liquidity trap length. In light of this finding, market expectations in the beginning of 2009 might indicate that expectations to the American Recovery and Reinvestment Act were too optimistic.

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