Endogenous Volatility at the Zero Lower Bound: Implications for Stabilization Policy / Susanto Basu, Brent Bundick.

Format:

Book

Author/Creator:

Basu, Susanto.

Contributor:

National Bureau of Economic Research.

Bundick, Brent.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21838.

NBER working paper series no. w21838

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Endogenous Volatility at the Zero Lower Bound

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

At the zero lower bound, the central bank's inability to offset shocks endogenously generates volatility. In this setting, an increase in uncertainty about future shocks causes significant contractions in the economy and may lead to non-existence of an equilibrium. The form of the monetary policy rule is crucial for avoiding catastrophic outcomes. State-contingent optimal monetary and fiscal policies can attenuate this endogenous volatility by stabilizing the distribution of future outcomes. Fluctuations in uncertainty and the zero lower bound help our model match the unconditional and stochastic volatility in the recent macroeconomic data.

Notes:

Print version record

December 2015.