(Dis)Solving the Zero Lower Bound Equilibrium through Income Policy
Guido Ascari () and
No 10/19, Working Papers from Sapienza University of Rome, DISS
We investigate the possibility to reflate an economy experiencing a long-lasting zero lower bound episode with subdued or negative inflation, by imposing a minimum level of wage inflation. Our proposed income policy relies on the same mechanism behind past disinflationary policies, but it works in the opposite direction. It is formalized as a downward nominal wage rigidity (DNWR) such that wage inflation cannot be lower than a fraction of the inflation target. This policy allows to dissolve the zero lower bound steady state equilibrium in an OLG model featuring “secular stagnation” and in a infinite-life model, where this equilibrium emerges due to deflationary expectations.
Keywords: zero lower bound; wage indexation; income policy; inflation expectations. (search for similar items in EconPapers)
JEL-codes: E31 E52 E64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
http://www.diss.uniroma1.it/sites/default/files/al ... Bonchi_wp10_2019.pdf (application/pdf)
Journal Article: (Dis)Solving the Zero Lower Bound Equilibrium through Income Policy (2022)
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:saq:wpaper:10/19
Access Statistics for this paper
More papers in Working Papers from Sapienza University of Rome, DISS Contact information at EDIRC.
Bibliographic data for series maintained by Pierluigi Montalbano ().