Government spending shocks do not lead to inflation, but boost productivity.
Government spending increases usually lead to higher prices, but this study found that prices don't go up when the government spends more money. Instead, prices stay the same or even decrease. This surprising result was consistent across different models and price indices. When the economy is in a tough spot, like a liquidity trap, the impact of government spending on prices is much smaller than usual. This means that the usual rules about government spending and inflation might not apply in all situations.