The Stagnation Regime of the New Keynesian Model and Current US Policy

George Evans

No 2011-06, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: In Evans, Guse, and Honkapohja (2008) the intended steady state is locally but not globally stable under adaptive learning, and unstable deflationary paths can arise after large pessimistic shocks to expectations. In the current paper a modified model is presented that includes a locally stable stagnation regime as a possible outcome arising from large expectation shocks. Policy implications are examined. Sufficiently large temporary increases in government spending can dislodge the economy from the stagnation regime and restore the natural stabilizing dynamics. More specific policy proposals are presented and discussed.

Keywords: Stagnation; fiscal and monetary policy; deflation trap (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Working Paper: The Stagnation Regime of the New Keynesian Model and Current US Policy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:248

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