Global policy at the zero lower bound in a large-scale DSGE model

This paper analyses whether fiscal policies can alleviate the effects of a global recession that drives interest rates to the zero lower bound. Additionally, we study the benefits of international coordination. The analysis is carried out using a dynamic general equilibrium model of the global economy (EAGLE model). We consider that the fiscal shocks are temporary and that fiscal policy retains full credibility at all times. In this setup we find significant non-linearities in a zero lower bound situation that amplify the effects of fiscal shocks compared to the non-zero lower bound case. International coordination is helpful but does not play a major role in the results.