We investigate the possibility to reflate an economy experiencing a long-lasting zero lower bound episode with subdued or negative inflation by imposing a minimum level of wage inflation. The income policy under investigation is formalized as a downward nominal wage growth rigidity, such that wage inflation cannot be lower than a fraction of the inflation target. This policy allows dissolving the zero lower bound steady-state equilibrium in an Overlapping Generations (OLG) model featuring “secular stagnation” and in an infinite-life model, where this equilibrium emerges due to deflationary expectations.

Bonchi, J., Ascari, G. (2022). (Dis)Solving the Zero Lower Bound Equilibrium through Income Policy. JOURNAL OF MONEY, CREDIT, AND BANKING, 54(2-3), 519-535 [10.1111/jmcb.12884].

(Dis)Solving the Zero Lower Bound Equilibrium through Income Policy

Jacopo Bonchi
Co-primo
;
2022

Abstract

We investigate the possibility to reflate an economy experiencing a long-lasting zero lower bound episode with subdued or negative inflation by imposing a minimum level of wage inflation. The income policy under investigation is formalized as a downward nominal wage growth rigidity, such that wage inflation cannot be lower than a fraction of the inflation target. This policy allows dissolving the zero lower bound steady-state equilibrium in an Overlapping Generations (OLG) model featuring “secular stagnation” and in an infinite-life model, where this equilibrium emerges due to deflationary expectations.
Articolo in rivista - Articolo scientifico
inflation expectations; wage indexation; zero lower bound;
English
519
535
17
Bonchi, J., Ascari, G. (2022). (Dis)Solving the Zero Lower Bound Equilibrium through Income Policy. JOURNAL OF MONEY, CREDIT, AND BANKING, 54(2-3), 519-535 [10.1111/jmcb.12884].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/396378
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