Infrequent but Long-Lived Zero-Bound Episodes and the Optimal Rate of Inflation

Abstract

Countries rarely hit the zero-lower bound on interest rates, but when they do, these episodes tend to be very long-lived.These two features are difficult to jointly incorporate into macroeconomic models using typical representations of shock processes.We introduce a regime switching representation of risk premium shocks into an otherwise standard New Keynesian model to generate a realistic distribution of ZLB durations.We discuss what different calibrations of this model imply for optimal inflation rates.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 18 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.