Publication at Faculty of Social Sciences |
2019
Abstract
This paper attempts to verify the economic theory that the government expenditure multiplier is higher at the zero lower bound than under normal circumstances. The theory is tested by a vector autoregression on US data between 1955 and 2015.The results obtained suggest a higher multiplier during the 1980s and 1990s than after 2000, when the zero lower bound was reached.
According to our results, the proposed economic theory has been rejected. The persistence of the government spending shock is a possible explanation why the multiplier is not higher at the zero lower bound.