The Government Spending Multiplier in a (Mis-)Managed Liquidity Trap

I study the impact of a government spending shock in a New Keynesian model when monetary policy is set optimally. In this framework, the economy is at the Zero Lower Bound but expectations are well managed by the Central Bank. As such, the multiplier effect of government spending increases on expected inflation is small while the one on output can be larger than one. This is consistent with recent empirical evidence on the effects of the 2009 ARRA.