Supply-side policies and the zero lower bound

Jesus Fernandez-Villaverde, Pablo Guerron and Juan F Rubio-Ramirez

No 11-47, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect that pulls current consumption and output up. Since the economy is at the ZLB, increases in the interest rates do not undo this wealth effect, as we will have in the case outside the ZLB. The authors illustrate this mechanism with a simple two-period New Keynesian model. They discuss possible objections to this set of policies and the relation of supply-side policies with more conventional monetary and fiscal policies.

Keywords: Supply-side economics; Keynesian economics (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Supply-Side Policies and the Zero Lower Bound (2014)
Working Paper: Supply-Side Policies and the Zero Lower Bound (2012)
Working Paper: Supply-Side Policies and the Zero Lower Bound (2011)
Working Paper: Supply-Side Policies and the Zero Lower Bound (2011)
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