Inflation and output in New Keynesian models with a transient interest rate peg

Labor Force Participation and Monetary Policy in the Wake of the Great Recession

“…Even for calibrations that do not yield a solution satisfying the max operator, we can typically find a solution which implies that the policy rate remain at zero for say T periods (and then follows the usual law of motion implied by the Blanchard–Kahn conditions). The problem is that such solutions exhibit perverse dynamics similar to those described by Carlstrom, Fuerst, and Paustian (). In particular, contractionary fundamental shocks “that would depress output and inflation in a short‐lived liquidity trap” can cause output and inflation to rise as the liquidity trap duration lengthens.…”

Precautionary Pricing: The Disinflationary Effects of ELB Risk

“…In contrast, we eschew an AR(1) specification for the medium-run component, since it is well-known that this would result in unrealistically low duration and/or severity for the typical in-model ELB episode, as argued in Richter and Throckmorton (2015) and Coibion et al (2016), among others. Instead, we adopt the regime-switching process proposed in Coibion et al (2016), which itself builds on earlier work by Eggertsson and Woodford (2003), Christiano et al (2011), Werning (2011), Carlstrom et al (2015), and several others. We illustrate this process in Figure 1.…”

Understanding the Aspects of Federal Reserve Forward Guidance

“…Krugman (1998) is a seminal paper in this literature. More recent papers in this literature areLevin et al (2010),Laséen and Svensson (2011), Werning (2011), Campbell et al (2012,Milani and Treadwell (2012),Carlstrom, Fuerst, and Paustian (2015),Del Negro, Giannoni, and Patterson (2015),Bundick and Smith (2016),Campbell et al (2016), and McKay,Nakamura, and Steinsson (2016).2Ellingsen and Söderström (2001),Frankel and Katrik (2015),Tang (2015),Gaballo (2016),Melosi (2017),Andrade et al (2018),Jarociński and Karadi (2018), and Jia (2018) also provide models where central bank policy reveals private information or coordinates dispersed information.…”