The standard new Keynesian model predicts that economies behave differently at the zero lower bound: completely wasteful government spending or forward guidance is very stimulative, and capital destruction or oil supply shocks are expansionary. I provide empirical evidence on this prediction and find it wanting: The Great East Japan Earthquake and oil supply shocks are contractionary at the zero lower bound. Modifications of the model that are consistent with this evidence also overturn other unusual policy predictions, such as large fiscal multipliers. My results suggest that many of the usual rules of economics continue to hold at zero nominal interest rates.

From March to July 1933, US industrial production rose 57 percent. We show that an important source of recovery was the effect of dollar devaluation on farm prices, incomes, and consumption. Devaluation immediately raised traded crop prices, and auto sales grew more rapidly in states and counties most exposed to these price increases. The response was amplified in counties with more severe farm debt burdens. For plausible assumptions about farmers’ relative MPC, the incidence of higher farm prices, and the aggregate multiplier, this redistribution to farmers accounted for a substantial portion of spring 1933 growth. This farm channel thus provides an example of how the distributional consequences of macroeconomic policies can have large aggregate effects. That recovery in 1933 benefited from redistribution to farmers suggests an important limitation to the use of 1933 as a guide to the effects of monetary regime changes in other circumstances.