Zero Lower Bound on Inflation Expectations / Yuriy Gorodnichenko, Dmitriy Sergeyev.

Format:

Book

Author/Creator:

Gorodnichenko, Yuriy.

Contributor:

National Bureau of Economic Research.

Sergeyev, Dmitriy.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29496.

NBER working paper series no. w29496

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

We document a new fact: in U.S., European and Japanese surveys, households do not expect deflation, even in environments where persistent deflation is a strong possibility. This fact stands in contrast to the standard macroeconomic models with rational expectations. We extend a New Keynesian model with a zero-lower bound on inflation expectations. Unconventional monetary policies, such as forward guidance, are weaker. In liquidity traps, the government spending output multiplier is finite, and adverse aggregate supply shocks are not expansionary. A confidence-driven liquidity trap steady state with deflation does not exist.

Notes:

Print version record

November 2021.