NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Infrequent but Long-Lived Zero-Bound Episodes and the Optimal Rate of Inflation

Marc Dordal-i-Carreras, Olivier Coibion, Yuriy Gorodnichenko, Johannes Wieland

NBER Working Paper No. 22510
Issued in August 2016
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

Countries rarely hit the zero-lower bound on interest rates, but when they do, these episodes tend to be very long-lived. These two features are difficult to jointly incorporate into macroeconomic models using typical representations of shock processes. We introduce a regime switching representation of risk premium shocks into an otherwise standard New Keynesian model to generate a realistic distribution of ZLB durations. We discuss what different calibrations of this model imply for optimal inflation rates.

download in pdf format
   (945 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22510

Published: Marc Dordal i Carreras & Olivier Coibion & Yuriy Gorodnichenko & Johannes Wieland, 2016. "Infrequent but Long-Lived Zero-Bound Episodes and the Optimal Rate of Inflation," Annual Review of Economics, vol 8(1).

Users who downloaded this paper also downloaded* these:
Nakamura, Steinsson, Sun, and Villar w22505 The Elusive Costs of Inflation: Price Dispersion during the U.S. Great Inflation
D'Erasmo and Mendoza w22509 Optimal Domestic (and External) Sovereign Default
Calvo w22535 From Chronic Inflation to Chronic Deflation: Focusing on Expectations and Liquidity Disarray Since WWII
Brunnermeier and Sannikov w22533 The I Theory of Money
Cochrane w22485 Macro-Finance
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us