Zero Lower Bound on Inflation Expectations

Yuriy Gorodnichenko and Dmitriy Sergeyev ()
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Dmitriy Sergeyev: Bocconi University

No 14853, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We document a new fact: in U.S., European and Japanese surveys, households do not expect deflation, even in environments where persistent deflation is a strong possibil- ity. This fact stands in contrast to the standard macroeconomic models with rational expectations. We extend a standard New Keynesian model with a zero-lower bound on inflation expectations. Unconventional monetary policies, such as forward guid- ance, are weaker. In liquidity traps, the government spending output multiplier is finite, and adverse aggregate supply shocks are not expansionary. The possibility of confidence-driven liquidity traps is attenuated.

Keywords: inflation expectations; non-rational beliefs; survey data (search for similar items in EconPapers)
JEL-codes: E5 E7 G4 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2021-11
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Zero Lower Bound on Inflation Expectations (2021)
Working Paper: Zero Lower Bound on Inflation Expectations (2021)
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