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US business cycle dynamics at the zero lower bound

Gregor Böhl and Felix Strobel

No 143, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: Using a nonlinear Bayesian likelihood approach that fully accounts for the zero lower bound on nominal interest rates, the authors analyze US post-crisis business cycle dynamics and provide reference parameter estimates. They find that neither the inclusion of financial frictions nor that of household heterogeneity improve the empirical fit of the standard model, or its ability to provide a joint explanation for the post-2007 dynamics. Associated financial shocks mis-predict an increase in consumption. The common practice of omitting the ZLB period in the estimation severely distorts the analysis of the more recent economic dynamics.

Keywords: Zero Lower Bound; Bayesian Estimation; Great Recession; Business Cycles (search for similar items in EconPapers)
JEL-codes: C11 C63 E31 E32 E44 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:143

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