Expectations, Stagnation and Fiscal Policy: a Nonlinear Analysis
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A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
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Date
2022-08
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Language
en
Pages
1397-1425
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INTERNATIONAL ECONOMIC REVIEW, Volume 63, issue 3
Abstract
Stagnation and fiscal policy are examined in a nonlinear stochastic New-Keynesian model with adaptive learning. There are three steady states. The steady state targeted by policy is locally but not globally stable under learning. A severe pessimistic expectations shock can trap the economy in a stagnation regime, underpinned by a low-level steady state, with falling inflation and output. A large fiscal stimulus may be needed to avoid or emerge from stagnation, and the impacts of forward guidance, credit frictions, central bank credibility, and policy delay are studied. Our model encompasses a wide range of outcomes arising from pessimistic expectations shocks.Description
https://doi.org/10.1111/iere.12573
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Evans, G W, Honkapohja, S & Mitra, K 2022, ' Expectations, Stagnation and Fiscal Policy: a Nonlinear Analysis ', International Economic Review, vol. 63, no. 3, pp. 1397-1425 . https://doi.org/10.1111/iere.12573