Is there a fiscal free lunch in a liquidity trap?

Preprint OPEN
Christopher J. Erceg; Jesper Linde;
  • Subject: Monetary policy ; Fiscal policy ; Liquidity (Economics) | DSGE Model; Fiscal Policy; Liquidity Trap; Monetary Policy; Zero Bound Constraint
    • jel: jel:E52 | jel:E58
    mesheuropmc: health care economics and organizations

This paper uses a DSGE model to examine the effects of an expansion in government spending in a liquidity trap. If the liquidity trap is very prolonged, the spending multiplier can be much larger than in normal circumstances, and the budgetary costs minimal. But given t... View more
  • References (6)

    Hall, Robert E. (2009), “How Much Does GDP Rise if the Government Buys More Output?" Manuscript, Stanford University, September 2009.

    Taylor, John B. (2007), “The Explanatory Power of Monetary Policy Rules”, working paper,

    Uhlig, Harald (2009) “Some Fiscal Calculus" Manuscript, University of Chicago, May 2009.

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