Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?

Chung, Hess; Laforte, Jean-Philippe; Reifschneider, David; Williams, John C.

doi:10.24148/wp2010-01

Cited by 95 publications

(134 citation statements)

References 56 publications

(76 reference statements)

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“…Our results are at the lower end of the spectrum in the existing literature. Beside the estimates in Baumeister and Benati (2010) mentioned earlier, Chung et al. (2011), using the FRB/US model, assume that LSAP II induces a reduction in the risk premium of only 20 bp but increases the level of GDP by about 0.6% and inflation rate by 0.1%.…”

Section: Simulating Lsap IImentioning

confidence: 99%

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The Macroeconomic Effects of Large‐scale Asset Purchase Programmes

Chen

Cúrdia

Ferrero

2012

The Economic Journal

386

309

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We simulate the Federal Reserve second Large-Scale Asset Purchase programme in a DSGE model with bond market segmentation estimated on US data. GDP growth increases by less than a third of a percentage point and inflation barely changes relative to the absence of intervention. The key reasons behind our findings are small estimates for both the elasticity of the risk premium to the quantity of long-term debt and the degree of financial market segmentation. Without the commitment to keep the nominal interest rate at its lower bound for an extended period, the effects of asset purchase programmes would be even smaller.

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Section: Simulating Lsap IImentioning

confidence: 99%

“…The inflationary consequences of asset purchase programmes are consistently very small throughout all scenarios considered. As a comparison, using the FRB/US model, Chung et al. (2011) find that LSAP II induced a reduction in the risk premium of only 20 bp but increased the level of GDP by about 0.6% and the inflation rate by 0.1%.…”

mentioning

confidence: 99%

The Macroeconomic Effects of Large‐scale Asset Purchase Programmes

Chen

Cúrdia

Ferrero

2012

The Economic Journal

386

309

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“…Recent studies have argued that research based on macroeconomic models estimated for the Great Moderation period might have underestimated the likelihood and the severity of zero‐bound events (see, e.g., Chung et al. ). One way to address this issue is to consider the welfare effects from lowering the steady‐state efficient real rate of interest

r^{*}

.…”

Section: Sensitivity Analysismentioning

confidence: 99%

Optimal Monetary and Fiscal Policy with a Zero Bound on Nominal Interest Rates

Schmidt¹

2013

J of Money Credit Banking

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I characterize optimal monetary and fiscal policy in a stochastic New Keynesian model when nominal interest rates may occasionally hit the zero lower bound. The benevolent policymaker controls the short-term nominal interest rate and the level of government spending. Under discretionary policy, accounting for fiscal stabilization policy eliminates to a large extent the welfare losses associated with the presence of the zero bound. Under commitment, the gains associated with the use of the fiscal policy tool remain modest, even though fiscal stabilization policy is part of the optimal policy mix.

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“…Like the models used to study the likelihood of hitting the ZLB in Chung et al (), or the one used by Coibion et al (). Abbritti and Fahr () is the state of the art in this research area.…”

mentioning

confidence: 99%

Downward Nominal Wage Rigidities Bend the Phillips Curve

Daly¹,

Hobijn²

2014

J of Money Credit Banking

105

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We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long‐run and the short‐run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.

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Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?

Cited by 95 publications

References 56 publications

The Macroeconomic Effects of Large‐scale Asset Purchase Programmes

The Macroeconomic Effects of Large‐scale Asset Purchase Programmes

Optimal Monetary and Fiscal Policy with a Zero Bound on Nominal Interest Rates

Downward Nominal Wage Rigidities Bend the Phillips Curve

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