Arbeitspapier
Expectations, stagnation and fiscal policy
Stagnation as the new norm and fiscal policy are examined in a New Keynesian model with adaptive learning determining expectations. We impose inflation and consumption lower bounds, which can be relevant when agents are pessimistic. The inflation target is locally stable under learning. Pessimistic initial expectations may sink the economy into steady-state stagnation with deflation. The deflation rate can be near zero for discount factors near one or if credit frictions are present. Following a severe pessimistic expectations shock a large temporary fiscal stimulus is needed to avoid or emerge from stagnation. A modest stimulus is sufficient if implemented early.
- ISBN
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978-952-323-124-5
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Finland Research Discussion Papers ; No. 25/2016
- Classification
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Wirtschaft
Fiscal Policy
Expectations; Speculations
Macroeconomics: Consumption; Saving; Wealth
Interest Rates: Determination, Term Structure, and Effects
- Event
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Geistige Schöpfung
- (who)
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Evans, George W.
Honkapohja, Seppo
Mitra, Kaushik
- Event
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Veröffentlichung
- (who)
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Bank of Finland
- (where)
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Helsinki
- (when)
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2016
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Evans, George W.
- Honkapohja, Seppo
- Mitra, Kaushik
- Bank of Finland
Time of origin
- 2016
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