Portuguese paper questions efficacy of fiscal policy at zero lower bound
A Bank of Portugal working paper questions how effective fiscal policy is in stimulating output when the nominal interest rate is at the zero lower bound.
Published yesterday, the paper, The output effects of (non-separable) government consumption at the zero lower bound, by Velerio Ercolani and João Valle e Azevedo, uses a New Keynesian model in which government consumption affects households' marginal utility of consumption.
The authors find the two types of consumption to be substitutes, and
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