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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.)

Abstract: 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
Date: 2019-03-07
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1243

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DOI: 10.17016/IFDP.2019.1243

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