Working Paper: NBER ID: w23961
Authors: Gauti B. Eggertsson; Vaishali Garga
Abstract: This paper shows that government spending multiplier at the zero lower bound (ZLB) is larger under sticky information than under sticky prices. Similarly, well known paradoxes, e.g., the paradox of toil and the paradox of flexibility become more severe under sticky information. For the case of sticky information it is important to assume that the fiscal policy intervention coincides with the duration of zero interest rates, while such distinction is less important in some special cases for sticky prices. This allows us to unify and clarify results that may appear to contradict each other in the literature.
Keywords: Fiscal Policy; Sticky Prices; Sticky Information; Zero Lower Bound
JEL Codes: E31; E4; E5; E50; E51; E52; E6; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government Spending Multiplier (Sticky Information) (C54) | Government Spending Multiplier (Sticky Prices) (C54) |
| Government Spending Multiplier (Sticky Prices) (C54) | Output (Y10) |
| Government Spending Multiplier (Sticky Information) (C54) | Output (Y10) |
| Tax Cuts (Sticky Information) (H31) | Output (Y10) |
| Tax Cuts (Sticky Prices) (H31) | Output (Y10) |
| Flexibility in Information Model (L15) | Expected Deflation (E31) |
| Expected Deflation (E31) | Current Output (C67) |