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Comment on Eggertsson, "What Fiscal Policy Is Effective at Zero Interest Rates?"

Lawrence J. Christiano
CQER Working Paper 10-06
November 2010

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Gauti B. Eggertsson's paper (published in NBER Macroeconomics Annual 2010) represents an important contribution to the analysis of fiscal policy in the New Keynesian model when the zero lower bound on the nominal interest rate is binding. The paper accomplishes a great deal. It analyzes two types of taxes on capital and labor, the investment tax credit, a sales tax, and two types of government spending. It deserves to be an important reference on fiscal policy in a binding zero lower bound. In my discussion, I focus on the subset of Eggertsson's results that initially surprised me and that I think will surprise many other readers too.

JEL classification: H3, E3, E4, E5

Key words: tax and spending multipliers, zero interest rates, deflation


The author benefited from conversations with Martin Eichenbaum and Daisuke Ikeda. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Lawrence J. Christiano, Department of Economics, Northwestern University, 2003 Sheridan Road, Evanston, IL 60208, 847-491-8231, l-christiano@northwestern.edu.

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