Understanding Persistent Stagnation
Abstract: We theoretically explore long-run stagnation at the zero lower bound in a representative agent framework. We analytically compare expectations-driven stagnation to a secular stagnation episode and find contrasting policy implications for changes in government spending, supply shocks and neo-Fisherian policies. On the other hand, a minimum wage policy is expansionary and robust to the source of stagnation. Using Bayesian methods, we estimate a DSGE model that can accommodate two competing hypotheses of long-run stagnation in Japan. We document that equilibrium selection under indeterminacy matters in accounting for model fit.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/ifdp/files/ifdp1243.pdf
Part of Series: International Finance Discussion Papers
Publication Date: 2019-03-07
Pages: 50 pages