Template-Type: ReDIF-Paper 1.0
Author-Name: Pablo Cuba-Borda
Author-Name-First: Pablo
Author-Name-Last: Cuba-Borda
Author-Name: Sanjay R. Singh
Author-Name-First: Sanjay R.
Author-Name-Last: Singh
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Understanding Persistent ZLB: Theory and Assessment
Abstract: Concerns of prolonged stagnation periods with near-zero interest rates and deflation have become widespread in many advanced economies. We build a theoretical framework that rationalizes two theories of low interest rates: expectations-trap and secular stagnation in a unified setting. We analytically derive contrasting policy implications under each hypothesis and identify robust policies that eliminate expectations-trap and reduce the severity of secular stagnation episodes. We provide a quantitative assessment of the Japanese experience from 1998:Q1-2020:Q4. We find evidence favoring the expectations-trap hypothesis and show that equilibrium indeterminacy is essential to distinguish between theories of low interest rates in the data.
Length: 72
File-URL: https://repec.dss.ucdavis.edu/files/4hpW6zSBwJrzKLHL6Nq6ENpD/Draft_EFStag_CS_dec21.pdf
File-Format: application/pdf
Number: 346
Classification-JEL: E31, E32, E52
KeyWords: Expectations-driven trap, secular stagnation, zero lower bound, robust policies.
Creation-Date: 20220112
Handle: RePEc:cda:wpaper:346