Supply-Side Policies and the Zero Lower Bound

Rubio-Ramírez, Juan Francisco, Fernández-Villaverde, Jesús and Pablo Guerron
Authors registered in the RePEc Author Service: Jesus Fernandez-Villaverde and Juan F Rubio-Ramirez

No 8642, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect that pulls current consumption and output up. Since the economy is at the ZLB, increases in the interest rates do not undo this wealth effect, as we will have in the case outside the ZLB. We illustrate this mechanism with a simple two-period New Keynesian model. We discuss possible objections to this set of policies and the relation of supply-side policies with more conventional monetary and fiscal policies.

Keywords: Zero lower bound; Supply-side policies; New keynesian models (search for similar items in EconPapers)
JEL-codes: E30 E50 E60 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Supply-Side Policies and the Zero Lower Bound (2014)
Working Paper: Supply-Side Policies and the Zero Lower Bound (2012)
Working Paper: Supply-side policies and the zero lower bound (2011)
Working Paper: Supply-Side Policies and the Zero Lower Bound (2011)
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