TY  - JOUR
AU  - Fernández-Villaverde,Jesús
AU  - Guerrón-Quintana,Pablo A.
AU  - Rubio-Ramírez,Juan
TI  - Supply-Side Policies and the Zero Lower Bound
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17543
PY  - 2011
Y2  - October 2011
UR  - http://www.nber.org/papers/w17543
L1  - http://www.nber.org/papers/w17543.pdf
N1  - Author contact info:
Jesus Fernandez-Villaverde
University of Pennsylvania
160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
Tel: 267/307-1068
E-Mail: jesusfv@econ.upenn.edu

Pablo A. Guerrón-Quintana
Federal Reserve Bank of Philadelphia
Tel: 9195132869
E-Mail: pablo.guerron@phil.frb.org

Juan Rubio-Ramírez
Duke University
P.O. Box 90097
Durham, NC 27708
Tel: 9196601865
E-Mail: juan.rubio-ramirez@duke.edu
AB  - This paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect that pulls current consumption and output up. Since the economy is at the ZLB, increases in the interest rates do not undo this wealth effect, as we will have in the case outside the ZLB. We illustrate this mechanism with a simple two-period New Keynesian model. We discuss possible objections to this set of policies and the relation of supply-side policies with more conventional monetary and fiscal policies.
ER  -