Understanding Persistent ZLB: Theory and Assessment

Pablo Cuba-Borda and Sanjay Singh

No 2024-03, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We develop a theoretical framework that rationalizes two hypotheses of long-lasting low interest rate episodes: deflationary-expectations-traps and secular stagnation in a unified setting. These hypotheses differ in the sign of the theoretical correlation between inflation and output growth that they imply. Using the data from Japan over 1998:Q1-2019:Q4, we find that the data favor the expectations-trap hypothesis. The superior model fit of the expectations trap relies on its ability to generate the observed negative correlation between inflation and output growth.

Keywords: Expectations-driven trap; secular stagnation; zero lower bound (ZLB) (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Pages: 38
Date: 2023-12-15
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Understanding Persistent ZLB: Theory and Assessment (2024)
Working Paper: Understanding Persistent ZLB: Theory and Assessment (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:97783

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DOI: 10.24148/wp2024-03

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