The non-linear Calvo model at the zero bound: Some analytic solutions and numerical results

Sanjay Singh and Gauti Eggertsson
Additional contact information
Sanjay Singh: Brown University

No 1204, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: This paper shows closed form solutions for the non-linear Calvo model at the zero bond under the assumption that uncertainty is given by a two state Markov chain with an absorbing state. This allows us to explicitly compare the solution of the non-linear model to the better known log-linearized version. In line with the log-linear model, we confirm in the non-linear setting i) large drops in output as shocks become more persistent until bifurcation occurs, ii) large government spending multipliers that have to be above 1 and iii) the paradox of toil. These results are in contrast with some recent literature on non-linearities at the ZLB. Mostly this is because that literature assumes particular form of Rotemberg prices which leads to "implausible" large cost of price adjustment in a way we make precise. Overall the non-linear Calvo model behaves similarly as its linearized counterpart both qualitatively and quantitatively with some important caveats we document.

Date: 2015
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_1204.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:1204

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann (chuichuiche@gmail.com).