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Understanding Persistent Stagnation

Sanjay Singh () and Pablo Cuba-Borda ()

No 329, Working Papers from University of California, Davis, Department of Economics

Abstract: We theoretically explore long-run stagnation at the zero lower bound in a representative agent framework. We analytically compare expectations-driven stagnation to a secular stagnation episode and find contrasting policy implications for changes in government spending, supply shocks and neo-Fisherian policies. On the other hand, a minimum wage policy is expansionary and robust to the source of stagnation. Using Bayesian methods, we estimate a DSGE model that can accommodate two competing hypotheses of long-run stagnation in Japan. We document that equilibrium selection under indeterminacy matters in accounting for model fit.

Keywords: Expectations-driven trap; secular stagnation; inflation expectations; zero lower bound. (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Pages: 50
Date: 2019-02-01
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