EconPapers    
Economics at your fingertips  
 

Global Dynamics at the Zero Lower Bound

William Gavin (), Benjamin Keen (), Alexander Richter () and Nathaniel Throckmorton

No auwp2013-17, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: This article presents global solutions to standard New Keynesian models with a zero lower bound (ZLB) constraint on the nominal interest rate. Rather than focus on specific sequences of shocks, we provide the solution for all combinations of technology and discount factor shocks and a thorough explanation of how dynamics change across the state space. Our solution method emphasizes accuracy to capture important expectational effects of going to and returning from the ZLB, which commonly used solution methods based on specific sequences of shocks cannot capture. We focus on the New Keynesian model without capital, but we also study the model with capital, with and without capital adjustment costs. Capital adds another mechanism for intertemporal substitution, which strengthens the expectational effects of the ZLB and impacts dynamics even before the ZLB is hit. We also evaluate how monetary policy affects the likelihood of hitting the ZLB. A policy rule based on a dual mandate is more likely to cause ZLB events when the central bank places greater emphasis on output stabilization.

Keywords: Monetary Policy; Zero Lower Bound; Global Solution Method (search for similar items in EconPapers)
JEL-codes: E31 E42 E58 E61 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19) Track citations by RSS feed

Downloads: (external link)
https://cla.auburn.edu/econwp/Archives/2013/2013-17.pdf (application/pdf)

Related works:
Journal Article: The zero lower bound, the dual mandate, and unconventional dynamics (2015) Downloads
Working Paper: Global dynamics at the zero lower bound (2013) Downloads
Working Paper: Global Dynamics at the Zero Lower Bound (2013) Downloads
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:abn:wpaper:auwp2013-17

Access Statistics for this paper

More papers in Auburn Economics Working Paper Series from Department of Economics, Auburn University Contact information at EDIRC.
Bibliographic data for series maintained by Hyeongwoo Kim ().

 
Page updated 2021-07-18
Handle: RePEc:abn:wpaper:auwp2013-17