Working Paper

Monetary steady states in a low real interest rate economy

Abstract: We study the properties of an overlapping generations model with many-period-lived agents, neoclassical production and capital accumulation, labor-leisure decisions, population growth, and technological progress. We demonstrate that a plausibly calibrated version of this model has \"monetary steady states\" -Samuelson-case steady states with large real stocks of unbacked government debt. These steady states can duplicate a number of important features of U.S. postwar data, including three phenomena that challenge other sorts of calibrated models: the low average real interest rate on U.S. government debt, the government's success in reducing the debt/GDP ratio without running large budget surpluses and the relatively high ratio of net saving to output.

https://doi.org/10.20955/wp.1994.012

Status: Published in Journal of Monetary Economics, v. 44, no. 3, December 1999, pp 477-508 (title: An empirically plausible model of low real interest rates and unbacked government debt)

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 1998

Number: 1994-012