(Dis)Solving the Zero Lower Bound Equilibrium through Income Policy

Guido Ascari and Jacopo Bonchi

Journal of Money, Credit and Banking, 2022, vol. 54, issue 2-3, 519-535

Abstract: We investigate the possibility to reflate an economy experiencing a long‐lasting zero lower bound episode with subdued or negative inflation by imposing a minimum level of wage inflation. The income policy under investigation is formalized as a downward nominal wage growth rigidity, such that wage inflation cannot be lower than a fraction of the inflation target. This policy allows dissolving the zero lower bound steady‐state equilibrium in an Overlapping Generations (OLG) model featuring “secular stagnation” and in an infinite‐life model, where this equilibrium emerges due to deflationary expectations.

Date: 2022
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https://doi.org/10.1111/jmcb.12884

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Working Paper: (Dis)Solving the Zero Lower Bound Equilibrium through Income Policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:54:y:2022:i:2-3:p:519-535

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