The unbearable lightness of equilibria in a low interest rate environment

Guido Ascari and Sophocles Mavroeidis

Working Papers from DNB

Abstract: Structural models with no solution are incoherent, and those with multiple solutions are incomplete. We show that models with occasionally binding constraints are not generically coherent. Coherency requires restrictions on the parameters or on the support of the distribution of the shocks. In presence of multiple shocks, the support restrictions cannot be independent from each other, so the assumption of orthogonality of structural shocks is incompatible with coherency. Models whose coherency is based on support restrictions are generically incomplete, admitting a very large number of minimum state variable solutions.

Keywords: incompleteness; incoherency; rational expectations; zero lower bound; DSGE (search for similar items in EconPapers)
JEL-codes: C62 E4 E52 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The unbearable lightness of equilibria in a low interest rate environment (2022)
Working Paper: The unbearable lightness of equilibria in a low interest rate environment (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:734

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