Using a rich dataset on government spending forecasts in Japan, we provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 in the ZLB period and 0.6 outside of it. We estimate that government spending shocks increase both private consumption and investment during the ZLB period, but crowd them out in the normal period. There is evidence that expected inflation increases more in the ZLB period than in the normal period.
Miyamoto, Wataru, Thuy Lan Nguyen, and Dmitriy Sergeyev.
"Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan."
American Economic Journal: Macroeconomics,
Macroeconomics: Consumption; Saving; Wealth
Investment; Capital; Intangible Capital; Capacity
Price Level; Inflation; Deflation
Interest Rates: Determination, Term Structure, and Effects