The macroeconomic risks of undesirably low inflation

Jonas E. Arias, Christopher Erceg and Mathias Trabandt

European Economic Review, 2016, vol. 88, issue C, 88-107

Abstract: This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.

Keywords: Disinflation; Monetary policy; Liquidity trap; DSGE model (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292116300575
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Macroeconomic Risks of Undesirably Low Inflation (2016)
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:eee:eecrev:v:88:y:2016:i:c:p:88-107

DOI: 10.1016/j.euroecorev.2016.03.005

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().