Escaping the Great Recession

Bianchi, Francesco; Melosi, Leonardo

doi:10.2139/ssrn.2537491

“…A related paper is Bianchi and Melosi (2017). They use a microfounded regimeswitching DSGE model -which allows for di¤erent monetary-…scal policy combinations à la Leeper (1991) -to study the missing de ‡ation during the ZLB period.…”

Section: Relation To the Literaturementioning

confidence: 99%

“…While the main goal of Bianchi and Melosi's (2017) paper is to investigate the channel via which the ZLB can induce policy uncertainty, our paper is concerned with the real e¤ects of uncertainty shocks at the ZLB. We see our contribution as complementary to theirs.…”

Section: Relation To the Literaturementioning

confidence: 99%

Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

Caggiano

¹

,

Castelnuovo

²

,

Pellegrino

³

2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We employ a parsimonious nonlinear Interacted-VAR to examine whether the real effects of uncertainty shocks are greater when the economy is at the ZeroLower Bound. We find the contractionary effects of uncertainty shocks to be statistically larger when the ZLB is binding, with differences that are economically important. Our results are shown not to be driven by the contemporaneous occurrence of the Great Recession and high .nancial stress, and to be robust to different ways of modeling unconventional monetary policy. These findings lend support to recent theoretical contributions on the interaction between uncertainty shocks and the stance of monetary policy. Terms of use: Documents inJEL-Codes: C320, E320.

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“…Finally, fiscal policy may also help explain the absence of deflation during the Great Recession, in that the combination of policy uncertainty surrounding policy makers's future behaviour at the zero lower bound and the inflationary pressure stemming from an existing large stock of debt may have prevented the economy from entering a deflationary state (Bianchi and Melosi 2014).…”

Section: Introductionmentioning

confidence: 99%

Will US inflation awake from the dead? The role of slack and non-linearities in the Phillips curve

Albuquerque

¹

,

Baumann

²

2017

Journal of Policy Modeling

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in EconStor may Working Paper SeriesWill US inflation awake from the dead? The role of slack and non-linearities in the Phillips curve The selection and refereeing process for this paper was carried out by the Chairs of the Task Force. Papers were selected based on their quality and on the relevance of the research subject to the aim of the Task Force. The authors of the selected papers were invited to revise their paper to take into consideration feedback received during the preparatory work and the referee's and Editors' comments.The paper is released to make the research of LIFT generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB, the ESCB, or any of the ESCB National Central Banks. Our main findings suggest that a Phillips curve model augmented with supply shocks and inflation expectations, estimated between 1992Q1 and 2007Q4, can explain rather well the behaviour of inflation after the Great Recession, with little apparent evidence of a missing deflation puzzle. We find that the Phillips curve specification with slack measured by the LMTI is consistently among the best performing specifications, together with the headline, mediumterm and long-term unemployment gaps. More important than the choice of the slack measure, however, is the consideration of a time-variation in the Phillips curve slope. Regressions on a rolling window as well as time-varying estimates using the Kalman filter confirm that the slope does vary over time. ECBIn an out-of-sample forecasting exercise, our models that take into account the time-varying nature of the slope coefficient exhibit the highest forecasting accuracy over 2008Q1 to 2015Q1.In addition, we find that the other (constant-slope) non-linear specifications explored in this paper do not seem to improve on the forecasting accuracy of the linear models.

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“…Bianchi & Melosi (2014), Chen (2014), Binning & Maih (2016b) and Binning & Maih (2016a) all use regime-switching to impose the lower bound constraint on interest rates. Benigno et al (2015) use regime-switching to model an occasionally binding debt constraint in a small open economy model.…”

mentioning

confidence: 99%

Modelling Occasionally Binding Constraints Using Regime-Switching

Binning¹,

Maih²

2017

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Occasionally binding constraints are part of the economic landscape: for instance recent experience with the global financial crisis has highlighted the gravity of the lower bound constraint on interest rates; mortgagors are subject to more stringent borrowing conditions when credit growth has been excessive or there is a downturn in the economy. In this paper we take four common examples of occasionally binding constraints in economics and demonstrate how to use regime-switching to incorporate them into DSGE models. In particular we investigate the zero lower bound constraint on interest rates, occasionally binding collateral constraints, downward nominal wage rigidities and irreversible investment. We compare our approach against some well-known methods for solving occasionally-binding constraints. We demonstrate the versatility of our regime-switching approach by combining multiple occasionally binding constraints to a model solved using higher-order perturbation methods, a feat that is di cult to achieve using alternative methodologies.

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Escaping the Great Recession

Cited by 80 publications

References 63 publications

Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

Will US inflation awake from the dead? The role of slack and non-linearities in the Phillips curve

Modelling Occasionally Binding Constraints Using Regime-Switching

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