Why may large economies suffer more at the zero lower bound?

Michal Brzoza-Brzezina

No 2016-012, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: This paper compares the consequences of hitting the zero lower bound in small open and large closed economies. I costruct a two-economy New Kenynesian model and calibrate it so that one economy is small and open and the second large and closed. Then I conduct a number of experiments assuming that the zero lower bound binds for one or the other economy. At the ZLB bad shocks are amplified and good shocks dampened. I show that these modifications are much stronger in the large than in the small economy. As a result the large economy may suffer more at the ZLB.

Keywords: zero lower bound; small open economy; amplification of shocks (search for similar items in EconPapers)
JEL-codes: E43 E52 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2016-06
New Economics Papers: this item is included in nep-mac and nep-mon
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Working Paper: Why may large economies suffer more at the zero lower bound? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2016012

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