Expectations, Deflation Traps and Macroeconomic Policy

Show full item record

Title: Expectations, Deflation Traps and Macroeconomic Policy
Author: Evans, George W., 1949-; Honkapohja, Seppo, 1951-
Abstract: We examine global economic dynamics under infinite-horizon learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja (2008), we find that under normal monetary and fiscal policy the intended steady state is locally but not globally stable. Unstable deflationary paths can arise after large pessimistic shocks to expectations. For large expectation shocks pushing interest rates to the zero lower bound, temporary increases in government spending can be used to insulate the economy from deflation traps.
Description: 32 p.
URI: http://hdl.handle.net/1794/10967
Date: 2009-07-06

Files in this item

Files Size Format View
UO-2010-5_Evans_Deflation.pdf 365.7Kb PDF View/Open

This item appears in the following Collection(s)

Show full item record