Self-fulfilling recessions at the zero lower bound
•We highlight equilibrium multiplicity in monetary economies subject to a zero bound.•With endogenous propagation, depressed current conditions must lower expectations of future conditions.•A recession followed by convergence back to steady state may then be an equilibrium outcome.•Expansionary fisc...
Saved in:
| Published in | Journal of monetary economics Vol. 115; pp. 213 - 232 |
|---|---|
| Main Authors | , , |
| Format | Journal Article |
| Language | English |
| Published |
Elsevier B.V
01.11.2020
|
| Subjects | |
| Online Access | Get full text |
Cover
Loading…
| Abstract | •We highlight equilibrium multiplicity in monetary economies subject to a zero bound.•With endogenous propagation, depressed current conditions must lower expectations of future conditions.•A recession followed by convergence back to steady state may then be an equilibrium outcome.•Expansionary fiscal policy makes the recession more severe at the margin.•A commitment to a sufficiently large expansion can rule out multiplicity.
We highlight an overlooked source of equilibrium multiplicity in monetary economies subject to a zero bound on nominal interest rates. In environments with sufficient endogenous propagation, depressed contemporary economic conditions must directly lower expectations of future output and inflation. A current recession followed by gradual convergence back to steady state may then be an equilibrium outcome, without any exogenous impulse. We present this mechanism heuristically in partial equilibrium, and in two computed examples of New Keynesian economies. Expansionary fiscal policy makes the recessionary equilibrium more severe at the margin, but commitment to a sufficiently large expansion can rule out multiplicity. |
|---|---|
| AbstractList | •We highlight equilibrium multiplicity in monetary economies subject to a zero bound.•With endogenous propagation, depressed current conditions must lower expectations of future conditions.•A recession followed by convergence back to steady state may then be an equilibrium outcome.•Expansionary fiscal policy makes the recession more severe at the margin.•A commitment to a sufficiently large expansion can rule out multiplicity.
We highlight an overlooked source of equilibrium multiplicity in monetary economies subject to a zero bound on nominal interest rates. In environments with sufficient endogenous propagation, depressed contemporary economic conditions must directly lower expectations of future output and inflation. A current recession followed by gradual convergence back to steady state may then be an equilibrium outcome, without any exogenous impulse. We present this mechanism heuristically in partial equilibrium, and in two computed examples of New Keynesian economies. Expansionary fiscal policy makes the recessionary equilibrium more severe at the margin, but commitment to a sufficiently large expansion can rule out multiplicity. |
| Author | Paustian, Matthias Brendon, Charles Yates, Tony |
| Author_xml | – sequence: 1 givenname: Charles surname: Brendon fullname: Brendon, Charles email: cfb46@cam.ac.uk organization: Faculty of Economics, University of Cambridge, Cambridge CB3 9DD, UK – sequence: 2 givenname: Matthias surname: Paustian fullname: Paustian, Matthias organization: Federal Reserve Board of Governors, Washington DC United States – sequence: 3 givenname: Tony surname: Yates fullname: Yates, Tony organization: Consultant, London, UK |
| BookMark | eNqFkE1LxDAQhoOs4O7qTxD6B1onadM0eBBZ_IIFD-o5JM1EU7qNJF1Ff71ddk9e9jQwzPMyz7sgsyEMSMglhYICra-6ottMmzYUDKgsoC4AqhMyp40oc8okn5E5lFDlpSzZGVmk1AFMl6KeE_aCvcvdtne-7_3wnkVsMSUfhpTpMRs_MPvFGLI-fGPMTNgO9pycOt0nvDjMJXm7v3tdPebr54en1e06bytGx7ymmhsrhGw4GrAGNKuMrZ3lICnnQjhpGHMNRWFkY42stTNYCsYrBE5tuSTX-9w2hpQiOtX6UY_Ta2PUvlcU1E5fdeqgr3b6Cmo16U80_0d_Rr_R8ecod7PncFL78hhVaj0OLVo_VTMqG_yRhD8lh3pB |
| CitedBy_id | crossref_primary_10_1162_rest_a_01122 |
| Cites_doi | 10.1257/pol.20130292 10.1016/j.jmoneco.2016.10.012 10.1093/restud/rdx027 10.1257/aer.97.3.586 10.1016/j.econlet.2012.03.003 10.1093/restud/rdv058 10.1086/701421 10.1016/j.jedc.2018.01.005 10.1093/restud/rdu016 10.1111/1467-937X.00123 10.1257/aer.91.4.964 10.1086/659312 10.1016/S0304-3932(03)00065-5 10.1006/jeth.1999.2585 |
| ContentType | Journal Article |
| Copyright | 2019 Elsevier B.V. |
| Copyright_xml | – notice: 2019 Elsevier B.V. |
| DBID | AAYXX CITATION |
| DOI | 10.1016/j.jmoneco.2019.06.004 |
| DatabaseName | CrossRef |
| DatabaseTitle | CrossRef |
| DatabaseTitleList | |
| DeliveryMethod | fulltext_linktorsrc |
| Discipline | Economics Business |
| EISSN | 1873-1295 |
| EndPage | 232 |
| ExternalDocumentID | 10_1016_j_jmoneco_2019_06_004 S030439321930114X |
| GroupedDBID | --K --M --Z -DZ -~X .L6 .~1 0R~ 1B1 1OL 1RT 1~. 1~5 29L 3R3 4.4 41~ 457 4G. 5GY 5VS 63O 6TJ 7-5 71M 8P~ 9JO AABCJ AABNK AACTN AAEDT AAEDW AAFFL AAIAV AAIKJ AAKOC AALRI AAOAW AAPFB AAQFI AAQXK AAXUO AAYJJ ABFNM ABFRF ABJNI ABLJU ABMAC ABPPZ ABXDB ABYKQ ACDAQ ACGFO ACGFS ACHQT ACNCT ACRLP ACROA ADBBV ADEZE ADFHU ADIYS ADMUD AEBSH AEFWE AEKER AETEA AEYQN AFFNX AFKWA AFODL AFTJW AGHFR AGTHC AGUBO AGYEJ AHHHB AI. AIEXJ AIIAU AIKHN AITUG AJBFU AJOXV AJWLA ALMA_UNASSIGNED_HOLDINGS AMFUW AMRAJ ASPBG AVWKF AXJTR AXLSJ AZFZN BEHZQ BEZPJ BGSCR BKOJK BKOMP BLXMC BNTGB BPUDD BULVW BZJEE CS3 D0S DU5 EBS EFJIC EFLBG EJD EO8 EO9 EP2 EP3 F5P FDB FEDTE FGOYB FIRID FNPLU FYGXN G-2 G-Q G8K GBLVA HFR HMB HVGLF HZ~ H~9 IHE IXIXF J1W K-O KOM LPU LY5 M41 MO0 MS~ MVM N9A O-L O9- OAUVE OZT P-8 P-9 PC. PQQKQ Q38 R2- RIG ROL RPZ RXW SDF SDG SDP SEB SEE SES SEW SPCBC SSB SSF SSZ T5K TAE TN5 TWZ U5U ULY UNMZH UQL VH1 WH7 WUQ XPP YK3 YQT ZKB ZMT ~G- AATTM AAXKI AAYWO AAYXX ABDPE ABWVN ACRPL ACVFH ADCNI ADMHG ADNMO ADVLN ADXHL AEIPS AEUPX AFJKZ AFPUW AFXIZ AGCQF AGQPQ AGRNS AIGII AIIUN AKBMS AKRWK AKYEP ANKPU APXCP BNPGV CITATION SSH |
| ID | FETCH-LOGICAL-c421t-61a5bd77985eb0db0a24bd6fd50915577f9b22f81e7b98db96afbe37254e051d3 |
| IEDL.DBID | .~1 |
| ISSN | 0304-3932 |
| IngestDate | Tue Jul 01 03:20:03 EDT 2025 Thu Apr 24 22:58:50 EDT 2025 Fri Feb 23 02:47:24 EST 2024 |
| IsDoiOpenAccess | false |
| IsOpenAccess | true |
| IsPeerReviewed | true |
| IsScholarly | true |
| Keywords | Equilibrium multiplicity Fiscal policy Zero lower bound |
| Language | English |
| LinkModel | DirectLink |
| MergedId | FETCHMERGED-LOGICAL-c421t-61a5bd77985eb0db0a24bd6fd50915577f9b22f81e7b98db96afbe37254e051d3 |
| OpenAccessLink | https://www.repository.cam.ac.uk/handle/1810/291177 |
| PageCount | 20 |
| ParticipantIDs | crossref_citationtrail_10_1016_j_jmoneco_2019_06_004 crossref_primary_10_1016_j_jmoneco_2019_06_004 elsevier_sciencedirect_doi_10_1016_j_jmoneco_2019_06_004 |
| ProviderPackageCode | CITATION AAYXX |
| PublicationCentury | 2000 |
| PublicationDate | 2020-11-01 |
| PublicationDateYYYYMMDD | 2020-11-01 |
| PublicationDate_xml | – month: 11 year: 2020 text: 2020-11-01 day: 01 |
| PublicationDecade | 2020 |
| PublicationTitle | Journal of monetary economics |
| PublicationYear | 2020 |
| Publisher | Elsevier B.V |
| Publisher_xml | – name: Elsevier B.V |
| References | Benhabib, Schmitt-Grohé, Uribe (bib0004) 2001; 96 Mertens, Ravn (bib0018) 2014; 81 Orphanides, Williams (bib0021) 2002 Cole, Kehoe (bib0010) 2000; 67 D’Acunto, Hoang, Weber (bib0011) 2018 Wieland (bib0026) 2019; 127 Bachmann, Berg, Sims (bib0003) 2015; 7 Aruoba, Cuba-Borda, Schorfheide (bib0002) 2018; 85 Woodford (bib0027) 2003 Blake (bib0005) 2012; 116 Arifovic, Schmitt-Grohé, Uribe (bib0001) 2018; 89 Smets, Wouters (bib0023) 2007; 97 Boneva, Braun, Waki (bib0006) 2016; 84 Christiano, Eichenbaum, Rebelo (bib0008) 2011; 119 Orphanides (bib0019) 2001; 91 Orphanides (bib0020) 2003; 50 Uribe (bib0025) 2018 Rendahl (bib0022) 2016; 83 Eggertsson (bib0013) 2011; Vol. 25 Eggertsson (bib0012) 2010 Orphanides (10.1016/j.jmoneco.2019.06.004_bib0021) 2002 Christiano (10.1016/j.jmoneco.2019.06.004_bib0008) 2011; 119 Rendahl (10.1016/j.jmoneco.2019.06.004_bib0022) 2016; 83 Blake (10.1016/j.jmoneco.2019.06.004_bib0005) 2012; 116 Boneva (10.1016/j.jmoneco.2019.06.004_bib0006) 2016; 84 Wieland (10.1016/j.jmoneco.2019.06.004_bib0026) 2019; 127 D’Acunto (10.1016/j.jmoneco.2019.06.004_bib0011) 2018 Aruoba (10.1016/j.jmoneco.2019.06.004_bib0002) 2018; 85 Orphanides (10.1016/j.jmoneco.2019.06.004_bib0019) 2001; 91 Benhabib (10.1016/j.jmoneco.2019.06.004_bib0004) 2001; 96 Bachmann (10.1016/j.jmoneco.2019.06.004_bib0003) 2015; 7 Cole (10.1016/j.jmoneco.2019.06.004_bib0010) 2000; 67 Arifovic (10.1016/j.jmoneco.2019.06.004_bib0001) 2018; 89 Eggertsson (10.1016/j.jmoneco.2019.06.004_bib0013) 2011; Vol. 25 Mertens (10.1016/j.jmoneco.2019.06.004_bib0018) 2014; 81 Smets (10.1016/j.jmoneco.2019.06.004_bib0023) 2007; 97 Orphanides (10.1016/j.jmoneco.2019.06.004_bib0020) 2003; 50 Eggertsson (10.1016/j.jmoneco.2019.06.004_bib0012) 2010 Uribe (10.1016/j.jmoneco.2019.06.004_bib0025) 2018 Woodford (10.1016/j.jmoneco.2019.06.004_bib0027) 2003 |
| References_xml | – volume: 84 start-page: 216 year: 2016 end-page: 232 ident: bib0006 article-title: Some unpleasant properties of loglinearized solutions when the nominal rate is zero publication-title: J. Monet. Econ. – volume: 127 start-page: 973 year: 2019 end-page: 1007 ident: bib0026 article-title: Are negative supply shocks expansionary at the zero lower bound? publication-title: J. Political Econ. – year: 2003 ident: bib0027 publication-title: Interest and prices: Foundations of a theory of monetary policy – volume: Vol. 25 start-page: 59 year: 2011 end-page: 112 ident: bib0013 article-title: What fiscal policy is effective at zero interest rates? publication-title: NBER Macroeconomics Annual – volume: 96 start-page: 40 year: 2001 end-page: 96 ident: bib0004 article-title: The perils of taylor rules publication-title: J. Econ. Theory – year: 2010 ident: bib0012 publication-title: The Paradox of Toil – volume: 89 start-page: 120 year: 2018 end-page: 136 ident: bib0001 article-title: Learning to live in a liquidity trap publication-title: J. Econ. Dyna. Control – volume: 81 start-page: 1637 year: 2014 end-page: 1667 ident: bib0018 article-title: Fiscal policy in an expectations-driven liquidity trap publication-title: Rev. Econ. Stud. – volume: 119 start-page: 78 year: 2011 end-page: 121 ident: bib0008 article-title: When is the government spending multiplier large? publication-title: J. Political Econ. – volume: 7 start-page: 1 year: 2015 end-page: 35 ident: bib0003 article-title: Inflation expectations and readiness to spend: cross-sectional evidence publication-title: Am. Econ. J. Econ. Policy – volume: 85 start-page: 87 year: 2018 end-page: 118 ident: bib0002 article-title: Macroeconomic dynamics at the ZLB: a tale of two countries publication-title: Rev. Econ. Stud. – volume: 67 start-page: 91 year: 2000 end-page: 116 ident: bib0010 article-title: Self-fulfilling debt crises publication-title: Rev. Econ. Stud. – start-page: 63 year: 2002 end-page: 145 ident: bib0021 article-title: Robust monetary policy rules with unknown natural rates publication-title: Brookings Papers on Economic Activity, 2:2002 – volume: 97 start-page: 586 year: 2007 end-page: 606 ident: bib0023 article-title: Shocks and frictions in US business cycles: a bayesian DSGE approach publication-title: Am. Econ. Rev. – year: 2018 ident: bib0011 article-title: The effect of unconventional fiscal policy on consumption expenditure publication-title: Manuscript – volume: 91 start-page: 964 year: 2001 end-page: 985 ident: bib0019 article-title: Monetary policy rules based on real-time data publication-title: Am. Econ. Rev. – volume: 83 start-page: 1189 year: 2016 end-page: 1224 ident: bib0022 article-title: Fiscal policy in an unemployment crisis publication-title: Rev. Econ. Stud. – year: 2018 ident: bib0025 article-title: The neo-Fisher effect: econometric evidence from empirical and optimizing models publication-title: NBER Working Paper 25089 – volume: 116 start-page: 269 year: 2012 end-page: 271 ident: bib0005 article-title: Determining optimal monetary speed limits publication-title: Econ. Lett. – volume: 50 start-page: 983 year: 2003 end-page: 1022 ident: bib0020 article-title: Historical monetary policy analysis and the taylor rule publication-title: J. Monet. Econ. – volume: 7 start-page: 1 issue: 1 year: 2015 ident: 10.1016/j.jmoneco.2019.06.004_bib0003 article-title: Inflation expectations and readiness to spend: cross-sectional evidence publication-title: Am. Econ. J. Econ. Policy doi: 10.1257/pol.20130292 – volume: 84 start-page: 216 year: 2016 ident: 10.1016/j.jmoneco.2019.06.004_bib0006 article-title: Some unpleasant properties of loglinearized solutions when the nominal rate is zero publication-title: J. Monet. Econ. doi: 10.1016/j.jmoneco.2016.10.012 – start-page: 63 year: 2002 ident: 10.1016/j.jmoneco.2019.06.004_bib0021 article-title: Robust monetary policy rules with unknown natural rates – year: 2018 ident: 10.1016/j.jmoneco.2019.06.004_bib0011 article-title: The effect of unconventional fiscal policy on consumption expenditure – year: 2003 ident: 10.1016/j.jmoneco.2019.06.004_bib0027 – volume: 85 start-page: 87 year: 2018 ident: 10.1016/j.jmoneco.2019.06.004_bib0002 article-title: Macroeconomic dynamics at the ZLB: a tale of two countries publication-title: Rev. Econ. Stud. doi: 10.1093/restud/rdx027 – volume: 97 start-page: 586 issue: 3 year: 2007 ident: 10.1016/j.jmoneco.2019.06.004_bib0023 article-title: Shocks and frictions in US business cycles: a bayesian DSGE approach publication-title: Am. Econ. Rev. doi: 10.1257/aer.97.3.586 – volume: 116 start-page: 269 year: 2012 ident: 10.1016/j.jmoneco.2019.06.004_bib0005 article-title: Determining optimal monetary speed limits publication-title: Econ. Lett. doi: 10.1016/j.econlet.2012.03.003 – year: 2018 ident: 10.1016/j.jmoneco.2019.06.004_bib0025 article-title: The neo-Fisher effect: econometric evidence from empirical and optimizing models – volume: Vol. 25 start-page: 59 year: 2011 ident: 10.1016/j.jmoneco.2019.06.004_bib0013 article-title: What fiscal policy is effective at zero interest rates? – volume: 83 start-page: 1189 year: 2016 ident: 10.1016/j.jmoneco.2019.06.004_bib0022 article-title: Fiscal policy in an unemployment crisis publication-title: Rev. Econ. Stud. doi: 10.1093/restud/rdv058 – volume: 127 start-page: 973 issue: 3 year: 2019 ident: 10.1016/j.jmoneco.2019.06.004_bib0026 article-title: Are negative supply shocks expansionary at the zero lower bound? publication-title: J. Political Econ. doi: 10.1086/701421 – volume: 89 start-page: 120 year: 2018 ident: 10.1016/j.jmoneco.2019.06.004_bib0001 article-title: Learning to live in a liquidity trap publication-title: J. Econ. Dyna. Control doi: 10.1016/j.jedc.2018.01.005 – volume: 81 start-page: 1637 issue: 4 year: 2014 ident: 10.1016/j.jmoneco.2019.06.004_bib0018 article-title: Fiscal policy in an expectations-driven liquidity trap publication-title: Rev. Econ. Stud. doi: 10.1093/restud/rdu016 – volume: 67 start-page: 91 year: 2000 ident: 10.1016/j.jmoneco.2019.06.004_bib0010 article-title: Self-fulfilling debt crises publication-title: Rev. Econ. Stud. doi: 10.1111/1467-937X.00123 – year: 2010 ident: 10.1016/j.jmoneco.2019.06.004_bib0012 – volume: 91 start-page: 964 year: 2001 ident: 10.1016/j.jmoneco.2019.06.004_bib0019 article-title: Monetary policy rules based on real-time data publication-title: Am. Econ. Rev. doi: 10.1257/aer.91.4.964 – volume: 119 start-page: 78 year: 2011 ident: 10.1016/j.jmoneco.2019.06.004_bib0008 article-title: When is the government spending multiplier large? publication-title: J. Political Econ. doi: 10.1086/659312 – volume: 50 start-page: 983 year: 2003 ident: 10.1016/j.jmoneco.2019.06.004_bib0020 article-title: Historical monetary policy analysis and the taylor rule publication-title: J. Monet. Econ. doi: 10.1016/S0304-3932(03)00065-5 – volume: 96 start-page: 40 year: 2001 ident: 10.1016/j.jmoneco.2019.06.004_bib0004 article-title: The perils of taylor rules publication-title: J. Econ. Theory doi: 10.1006/jeth.1999.2585 |
| SSID | ssj0001976 |
| Score | 2.3096545 |
| Snippet | •We highlight equilibrium multiplicity in monetary economies subject to a zero bound.•With endogenous propagation, depressed current conditions must lower... |
| SourceID | crossref elsevier |
| SourceType | Enrichment Source Index Database Publisher |
| StartPage | 213 |
| SubjectTerms | Equilibrium multiplicity Fiscal policy Zero lower bound |
| Title | Self-fulfilling recessions at the zero lower bound |
| URI | https://dx.doi.org/10.1016/j.jmoneco.2019.06.004 |
| Volume | 115 |
| hasFullText | 1 |
| inHoldings | 1 |
| isFullTextHit | |
| isPrint | |
| link | http://utb.summon.serialssolutions.com/2.0.0/link/0/eLvHCXMwnV1NSwMxEA1FQb2IVsX6UfbgdbvdJLvZHEuxVMVeaqG3JbNJoKXU0m4vHvztTvbDKoKC12UHNi_ZmTdk3gwhdzK2nFka-cxq8LnpKh-S0PiUgZaGKqYKIe3zKB5O-OM0mjZIv9bCuLLKyveXPr3w1tWToEIzWM1mwdhd6jGkH0hBHKufOgU7F-6Ud953ZR6hFOV9pbsBwLd3Kp5g3pnjVmOW5yq8ZNHGs5rX9iM-fYk5gxNyXJFFr1d-zylpmGWTHNS16k1yWMuKN2eEjs3C-na7sLOizbaHyyp7bmw8lXvI87w3s371Fm4smgdumtI5mQzuX_pDvxqI4GechjmmeSoCLYRMIgNdDV1FOejYahf1o0gIK4FSi1gLkIkGGSsLhglMAg3-fJpdkL0lrviSeBaEBWRnmsWK6wRAxQzDdZyEKkPOkrUIr2FIs6pbuBtasUjrsrB5WqGXOvTSojyOt0jn02xVtsv4yyCpMU6_7XuKLv1306v_m16TI-ry5kJTeEP28vXW3CK5yKFdnJ422e89PA1HHz-XzuY |
| linkProvider | Elsevier |
| linkToHtml | http://utb.summon.serialssolutions.com/2.0.0/link/0/eLvHCXMwnV1LS8NAEB5qC-pFtCrWZw5e08dunsdSLK19XNpCb2GnuwstpZY-Lv56Z5NNVQQFr4GB7LfJzDfMzDcAz3GgPa6Z73It0fVUXbgYNZTLOMpYMcFFOkg7GAadifc69acFaOWzMKat0vr-zKen3to-qVk0a-v5vDYyRT1O9IMoiGH10yMoGXUqvwilZrfXGR4cciMOs5KlKQKQwecgT21RXdBtU6JnmrziVMnTrmz7EaK-hJ32OZxZvug0s1e6gIJaleE4b1cvw0k-Wby9BDZSS-3q_VLPU6Vth06WyW5sHbFziOo572rz5izNZjQHzUKlK5i0X8atjmt3IrgzjzV2lOkJH2UYxpGvsC6xLpiHMtDSBH7fD0MdI2Oa4A4xjiTGgdCoeEh5oKL_T_JrKK7oxDfgaAw1EkGTPBCejBBFwCliB1FDzIi2zCrg5TAkMysYbvZWLJO8M2yRWPQSg16Sdsh5FagezNaZYsZfBlGOcfLt6hPy6r-b3v7f9AlOOuNBP-l3h707OGUmjU5HDO-huNvs1QNxjR0-2m_pA2jX0Zc |
| openUrl | ctx_ver=Z39.88-2004&ctx_enc=info%3Aofi%2Fenc%3AUTF-8&rfr_id=info%3Asid%2Fsummon.serialssolutions.com&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.atitle=Self-fulfilling+recessions+at+the+zero+lower+bound&rft.jtitle=Journal+of+monetary+economics&rft.au=Brendon%2C+Charles&rft.au=Paustian%2C+Matthias&rft.au=Yates%2C+Tony&rft.date=2020-11-01&rft.issn=0304-3932&rft.volume=115&rft.spage=213&rft.epage=232&rft_id=info:doi/10.1016%2Fj.jmoneco.2019.06.004&rft.externalDBID=n%2Fa&rft.externalDocID=10_1016_j_jmoneco_2019_06_004 |
| thumbnail_l | http://covers-cdn.summon.serialssolutions.com/index.aspx?isbn=/lc.gif&issn=0304-3932&client=summon |
| thumbnail_m | http://covers-cdn.summon.serialssolutions.com/index.aspx?isbn=/mc.gif&issn=0304-3932&client=summon |
| thumbnail_s | http://covers-cdn.summon.serialssolutions.com/index.aspx?isbn=/sc.gif&issn=0304-3932&client=summon |