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Working Paper
Self-Fulfilling Debt Crises with Long Stagnations
We explore quantitatively the possibility of multiple equilibria in a model of sovereign debt crises. The source of multiplicity is the one identified by Calvo (1988). This type of multiplicity has been at the heart of the policy debate through the recent European sovereign debt crisis. Key for multiplicity in the model is a stochastic process for output featuring long periods of either high or low growth. We calibrate the output process in the model using data for the southern European countries that were exposed to the debt crisis. We find that expectations-driven sovereign debt crises are ...
Working Paper
The Tail that Wags the Economy: Beliefs and Persistent Stagnation
The Great Recession was a deep downturn with long-lasting effects on credit, employment and output. While narratives about its causes abound, the persistence of GDP below pre-crisis trends remains puzzling. We propose a simple persistence mechanism that can be quantified and combined with existing models. Our key premise is that agents don't know the true distribution of shocks, but use data to estimate it non-parametrically. Then, transitory events, especially extreme ones, generate persistent changes in beliefs and macro outcomes. Embedding this mechanism in a neoclassical model, we find ...
Speech
Economic erowth and monetary policy: Is there a new normal?
The George Washington University and Princeton University's Griswold Center for Economic Policy Studies Philadelphia, PA President Charles Plosser gives his views on the debate about a new normal for economic growth in the U.S. economy. He will also discuss the question of future productivity growth and highlight research in this area.
Discussion Paper
The Need for Very Low Interest Rates in an Era of Subdued Investment Spending
Why have interest rates stayed low for so long after the financial crisis?and will they remain low for the foreseeable future? One way to answer these questions is to use the accounting identity that global saving must equal physical investment spending and argue that low rates have been necessary to prop up investment spending enough to match saving. From this perspective, the extent of any recovery in interest rates depends on whether weak investment spending is driven primarily by secular demographic trends that are a long-term drag on aggregate demand or by the residual effects of the ...