Understanding persistent ZLB: Theory and assessment

Arbeitspapier

Concerns of prolonged stagnation periods with near-zero interest rates and deflation have become widespread in many advanced economies. We build a theoretical framework that rationalizes two theories of low interest rates: expectations-trap and secular stagnation in a unified setting. We analytically derive contrasting policy implications under each hypothesis and identify robust policies that eliminate expectations-trap and reduce the severity of secular stagnation episodes. We provide a quantitative assessment of the Japanese experience from 1998:Q1-2020:Q4. We find evidence favoring the expectations-trap hypothesis and show that equilibrium indeterminacy is essential to distinguish between theories of low interest rates in the data.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 346

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Business Fluctuations; Cycles ; Monetary Policy
• Subject: Expectations-driven trap ; secular stagnation ; zero lower bound ; robust policies

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cuba-Borda, Pablo ; Singh, Sanjay R.
• Event: Veröffentlichung
• (who): University of California, Department of Economics
• (where): Davis, CA
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/267010
• Last update: 10.03.2025, 11:43 AM CET