Expectations, Stagnation and Fiscal Policy: a Nonlinear Analysis
George Evans (),
Seppo Honkapohja () and
Kaushik Mitra ()
Discussion Papers from Department of Economics, University of Birmingham
Stagnation and fiscal policy are examined in a nonlinear stochastic New- Keynesian model with adaptive learning. There are three steady states. The steady state targeted by policy is locally but not globally stable under learning. A severe pessimistic expectations shock can trap the economy in a stagnation regime, underpinned by a low-level steady state, with falling inflation and output. A large fiscal stimulus may be needed to avoid or emerge from stagnation, and the impacts of forward guidance, credit frictions, central bank credibility and policy delay are studied. Our model encompasses a wide range of outcomes arising from pessimistic expectations shocks.
Keywords: Stagnation Trap; Expectations; Fiscal Policy; Adaptive Learning; New-Keynesian Model (search for similar items in EconPapers)
JEL-codes: D84 E52 E62 E63 E71 (search for similar items in EconPapers)
Pages: 70 pages
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-ore
References: View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Journal Article: EXPECTATIONS, STAGNATION, AND FISCAL POLICY: A NONLINEAR ANALYSIS (2022)
Working Paper: Expectations, Stagnation and Fiscal Policy: a Nonlinear Analysis (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:22-01
Access Statistics for this paper
More papers in Discussion Papers from Department of Economics, University of Birmingham Contact information at EDIRC.
Bibliographic data for series maintained by Oleksandr Talavera ().