Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110721
Authors: 
Bredemeier, Christian
Juessen, Falko
Schabert, Andreas
Year of Publication: 
2015
Series/Report no.: 
IZA Discussion Papers 8993
Abstract: 
This paper questions unconventional fiscal policy effects when the monetary policy rate is at the zero lower bound. We provide evidence for the US that the spread between the policy rate and the US-LIBOR, which is more relevant for private sector transactions, increases with government expenditures. We introduce a corresponding spread into an otherwise standard macroeconomic model which reproduces this observation. The model predicts that the fiscal multiplier takes conventional values, regardless of whether the policy rate follows a standard feedback rule or is at its zero lower bound. Likewise, labor tax increases exert contractionary effects in both cases.
Subjects: 
fiscal multiplier
tax policy
interest rate spreads
zero lower bound
liquidity premium
JEL: 
E32
E42
E63
Document Type: 
Working Paper

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