Erceg, Christopher J.; Linde, Jesper - Federal Reserve Board (Board of Governors of the … - 2010
This paper uses a DSGE model to examine the effects of an expansion in government spending in a liquidity trap. If the … liquidity trap is very prolonged, the spending multiplier can be much larger than in normal circumstances, and the budgetary … expansion. Our paper addresses this question in a model environment in which the duration of the liquidity trap is determined …