Salle 3001

Jordand ROULLEAU-PASDELOUP (National University of Singapore) “Clearing Up the Effective Lower Bound Morass”

Abstract: Depending on the persistence of the underlying Markov chain shock, the standard New Keynesian model predicts starkly different conclusions at the Effective Lower Bound (ELB). Using a mildly persistent structural shock to generate the ELB, Eggertsson (2011) concludes that fiscal policy crowds consumption in. Using multiple equilibria and a highly persistent sunspot shock to generate the ELB Mertens & Ravn (2014) conclude that it crowds consumption out. We clear up this morass by using a truncated Markov chain. In our setup, the equilibrium is guaranteed to be unique and the effects of fiscal (or any other) policy do not flip qualitatively regardless of the persistence level.”

Joint work : Haochun Ma (NUS)

Organizer : Jean-Baptiste MICHAU