Understanding Persistent Stagnation
Pablo Cuba-Borda () and
Sanjay Singh ()
No 1243, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)
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)
New Economics Papers: this item is included in nep-dge and nep-mac
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Working Paper: Understanding Persistent Stagnation (2019)
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