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Published online by Cambridge University Press:  14 August 2020

Dennis Bonam
De Nederlandsche Bank, VU Amsterdam
Jakob De Haan
De Nederlandsche Bank, University of Groningen and CESifo
Beau Soederhuizen
Netherlands Bureau for Economic Policy Analysis, Nyenrode Business University
E-mail address:
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We estimate the effects of government spending shocks during prolonged episodes of low interest rates, which we consider as proxy for the effective lower bound (ELB). Using a panel VAR model for 17 advanced countries, we find that both the government consumption and investment multipliers are significantly higher, and exceed unity, when interest rates are persistently low. Distinguishing between construction- and equipment-related government investments, we find that only the former raises output by significantly more when the ELB binds. This result can be explained by existing New Keynesian models featuring time-to-build constraints on government investment.

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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (, which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
© 2020 Cambridge University Press


We would like to thank Pascal Jacquinot, Marien Ferdinandusse, and seminar participants at the Fiscal Policies Division of the European Central Bank, the Dutch Economist Day 2017, the Dutch Central Bank, and the IWEEE 2018, as well as three referees for their helpful comments and suggestions on a previous version of the paper. All errors are our own. The views expressed do not necessarily reflect the official position of De Nederlandsche Bank, the Eurosystem, or the CPB Netherlands Bureau of Policy Analysis.


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