Mertens, Karel R. S. M.; Ravn, Morten O. - In: Review of Economic Studies 81 (2014) 4, pp. 1637-1667
We study the effects of fiscal policy interventions in a liquidity trap in a model with nominal rigidities and an interest rate rule. In a liquidity trap caused by a self-fulfilling state of low confidence, higher government spending has deflationary effects that reduce the spending multiplier...