Expectations, Deflation Traps and Macroeconomic Policy
George Evans () and
Seppo Honkapohja ()
University of Oregon Economics Department Working Papers from University of Oregon Economics Department
We examine global economic dynamics under infinite-horizon learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja (2008), we find that under normal monetary and fiscal policy the intended steady state is locally but not globally stable. Unstable deflationary paths can arise after large pessimistic shocks to expectations. For large expectation shocks pushing interest rates to the zero lower bound, temporary increases in government spending can be used to insulate the economy from deflation traps.
Keywords: Adaptive Learning; Monetary Policy; Fiscal Policy; Zero Interest Rate Lower Bound (search for similar items in EconPapers)
JEL-codes: E63 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://economics.uoregon.edu/papers/UO-2010-5_Evans_Deflation.pdf [301 Moved Permanently]--> https://economics.uoregon.edu/papers/UO-2010-5_Evans_Deflation.pdf)
Working Paper: Expectations, deflation traps and macroeconomic policy (2009)
Working Paper: Expectations, Deflation Traps and Macroeconomic Policy (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ore:uoecwp:2010-5
Access Statistics for this paper
More papers in University of Oregon Economics Department Working Papers from University of Oregon Economics Department Contact information at EDIRC.
Bibliographic data for series maintained by Bill Harbaugh ().