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Department ofEconomics


Government Spending Multipliers under Zero Lower Bound: Evidence from Japan

Lan Nguyen, Wataru. Miyamoto, and Dmitriy Sergeyev

American Economic Journal: Macroeconomics 10(3), pp 247-77, July 2018


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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 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 by more in the ZLB period than in the normal period.

LSB Research, ECON, 2018, Lan Nguyen