Expectations, Stagnation and Fiscal Policy: a Nonlinear Analysis
George Evans (),
Seppo Honkapohja () and
No 15171, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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: Adaptive Learning; Expectations; Fiscal policy; New-Keynesian model; Stagnation Trap (search for similar items in EconPapers)
JEL-codes: D84 E52 E62 E63 E71 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at firstname.lastname@example.org
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:cpr:ceprdp:15171
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=15171
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().