Supply-Side Policies and the Zero Lower Bound

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

No 17543, NBER Working Papers from National Bureau of Economic Research, Inc

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. We illustrate this mechanism with a simple two-period New Keynesian model. We discuss possible objections to this set of policies and the relation of supply-side policies with more conventional monetary and fiscal policies.

JEL-codes: E3 E4 E52 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cba and nep-mac
Note: EFG
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Citations: View citations in EconPapers (4)

Published as IMF Economic Review (2014) 62, 248–260. doi:10.1057/imfer.2014.10; published online 15 July 2014 Supply-Side Policies and the Zero Lower Bound Jesús Fernández-Villaverde*, Pablo Guerrón-Quintana* and Juan F Rubio-Ramírez*

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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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