Zero Lower Bound on Inflation Expectations

Yuriy Gorodnichenko and Dmitriy Sergeyev

No 29496, NBER Working Papers from National Bureau of Economic Research, Inc

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 possibility. This fact stands in contrast to the standard macroeconomic models with rational expectations. We extend a New Keynesian model with a zero-lower bound on inflation expectations. Unconventional monetary policies, such as forward guidance, are weaker. In liquidity traps, the government spending output multiplier is finite, and adverse aggregate supply shocks are not expansionary. A confidence-driven liquidity trap steady state with deflation does not exist.

JEL-codes: E5 E7 G4 (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-dge, nep-mac and nep-mon
Note: EFG ME
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Citations: View citations in EconPapers (15)

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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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