Government spending can have low multipliers at ZLB – Bank of Italy paper
Model’s results are in line with recent empirical evidence, researchers say
Government spending multipliers can be low when the nominal interest rate is stuck at the zero lower bound, a working paper published by the Bank of Italy argues.
In How can the government spending multiplier be small at the zero lower bound? Valerio Ercolani and João Valle e Azevedo say that much of the literature accepts government spending multipliers will be large at the ZLB.
But the authors note that “some recent empirical evidence” challenges this belief. This evidence suggests that the
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