Dynamic Debt Deleveraging and Optimal Monetary Policy

Pierpaolo Benigno, Gauti Eggertsson and Federica Romei

No 20556, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies optimal monetary policy under dynamic debt deleveraging once the zero bound is binding. Unlike the existing literature, the natural rate of interest is endogenous and depends on macroeconomic policy. Optimal monetary policy successfully raises the natural rate of interest by creating an environment that speeds up deleveraging, thus endogenously shortening the duration of the crisis and a binding zero bound. Inflation should be front loaded. Fiscal-policy multipliers can be even higher than in existing models, but depend on the way in which public spending is financed.

JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (44)

Published as Pierpaolo Benigno & Gauti B. Eggertsson & Federica Romei, 2020. "Dynamic Debt Deleveraging and Optimal Monetary Policy," American Economic Journal: Macroeconomics, vol 12(2), pages 310-350.

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Related works:
Journal Article: Dynamic Debt Deleveraging and Optimal Monetary Policy (2020)
Working Paper: Dynamic Debt Deleveraging and Optimal Monetary Policy (2016)
Working Paper: Dynamic Debt Deleveraging and Optimal Monetary Policy (2015)
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