Macroeconomic Dynamics Near the ZLB: ATale of Two Countries

ARUOBA, S. BORA˘GAN and BORDA, PABLO CUBA and HEIDE, FRANK SCHORF,(2018), Macroeconomic Dynamics Near the ZLB: ATale of Two Countries. , Review of Economic Studies, UNSPECIFIED

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We compute a sunspot equilibrium in an estimated small scale New Keynesian model with a zero lower bound (ZLB) constraint on nominal interest rates and a full set of stochastic fundamental shocks. In this equilibrium, a sunspot shock can move the economy from a regime in which inflation is close to the central bank’s target to a regime in which the central bank misses its target, inflation rates are negative, and interest rates are close to zero with high probability.Anon-linear filter is used to examine whether the U.S. in the aftermath of the Great Recession and Japan in the late 1990s transitioned to a deflation regime. The results are somewhat sensitive t
Keywords : Deflation, DSGE Models, Japan, Multiple Equilibria, Nonlinear Filtering, Nonlinear Solution Methods, Sunspots, U.S., ZLB., UNSPECIFIED
Journal or Publication Title: Review of Economic Studies
Volume: 85
Item Type: Article
Subjects: Ekonomi Pembangunan
Depositing User: Elok Inajati
Date Deposited: 20 Dec 2019 06:34
Last Modified: 20 Dec 2019 06:34

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