Liquidity trap and expectation dynamics: Fiscal stimulus or fiscal austerity?

Arbeitspapier

We examine global dynamics under infinite-horizon learning in New Keynesian models where the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja (2008), the intended steady state is locally but not globally stable. Unstable deflationary paths emerge after large pessimistic shocks to expectations. For large expectation shocks that push interest rates to the zero bound, a temporary fiscal stimulus or a policy of fiscal austerity, appropriately tailored in magnitude and duration, will insulate the economy from deflation traps. However "fiscal switching rules" that automatically kick in without discretionary fine tuning can be equally effective.

Angaben zum Objekt

• ISBN: 978-952-462-818-1
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Bank of Finland Research Discussion Papers ; No. 27/2012

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Monetary Policy ; Central Banks and Their Policies
• Thema: Adaptive Learning ; Monetary Policy ; Fiscal Policy ; Zero Interest Rate Lower Bound

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Benhabib, Jess ; Evans, George W. ; Honkapohja, Seppo
• Ereignis: Veröffentlichung
• (wer): Bank of Finland
• (wo): Helsinki
• (wann): 2012

Weitere Informationen

• Handle: http://hdl.handle.net/10419/212230
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ