This paper shows that government spending multiplier at the zero lower bound (ZLB) is larger under sticky information than under sticky prices. Similarly, well known paradoxes, e.g., the paradox of toil and the paradox of flexibility become more severe under sticky information. For the case of sticky information it is important to assume that the fiscal policy intervention coincides with the duration of zero interest rates, while such distinction is less important in some special cases for

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... y prices. This allows us to unify and clarify results that may appear to contradict each other in the literature. ). The ZLB is binding due to exogenous fundamental shocks. Once the shocks are over, the policy is given by a simple inflation target (which is missed for the duration of the shocks, due to the ZLB). This experiment is referred to as ZLB experiment (ZLB-EX). This paper documents that the results derived in the literature under sticky prices in the ZLB-EX are even more extreme if sticky prices are replaced with sticky information, which is the opposite of Kiley's result. The government spending multiplier becomes larger, and the paradox of toil and flexibility become more pronounced. While this may seem to contradict Kiley's findings, it does not. Instead it clarifies that Kiley's PEG-EX is a fundamentally different experiment than done in the existing literature. What is particularly subtle -and interesting -about the comparison, and likely to trigger confusion, is that under sticky prices the ZLB-EX and PEG-EX lead to exactly the same result. It is only when assuming sticky information that the results of the ZLB-EX and the PEG-EX are different. This does not have anything to do with the nature of the nominal frictions. Instead, it is a consequence of the fact that the sticky-information model has infinite number of endogenous state variables. Meanwhile the Calvo model is purely forward looking. The presence of endogenous state variables in the sticky-information model implies that comparing the reaction of an economy assuming an exogenous interest rate peg, versus the reaction of the economy if the central bank's policy is bounded by zero due to fundamental shocks, leads to very different results. The same does not apply for perfectly forward looking systems like the Calvo model of price stickiness. This paper first shows analytical examples that clarify the intuition behind these findings. It then moves to numerical examples that replicate Kiley's results. These examples confirm that Kiley's results are driven by the difference in experiments being conducted rather than anything fundamental about the assumption of price stickiness. Arguably, the ZLB-EX is more economically relevant than PEG-EX. It seems of more limited economic interest -at least in the context of the crisis that started in 2008 -to explore the behavior of New Keynesian models if the short-term interest rate is temporarily pegged for no apparent reasons. Instead, the most economically interesting experiment appears to be when the interest rate is pegged due to the fact that the ZLB is binding on account of a fundamental recessionary shock that prevents the central bank from achieving its objective of stabilizing inflation and output. 1