Understanding Persistent ZLB: Theory and Assessment

Pablo Cuba-Borda and Sanjay Singh

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 3, 389-416

Abstract: We develop a theoretical framework that rationalizes two hypotheses of long-lasting low-interest rate episodes: deflationary-expectations-traps and secular stagnation in a unified setting. These hypotheses differ in the sign of the theoretical correlation between inflation and output growth that they imply. Using the data from Japan over 1998:I–2019:IV, we find that the data favor the expectations-trap hypothesis. The superior model fit of the expectations trap relies on its ability to generate the observed negative correlation between inflation and output growth.

JEL-codes: E12 E31 E32 E43 E52 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Understanding Persistent ZLB: Theory and Assessment (2023)
Working Paper: Understanding Persistent ZLB: Theory and Assessment (2022)
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DOI: 10.1257/mac.20210453

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