This paper proposes a postcrisis New Keynesian model that incorporates agent heterogeneity in borrowing and lending with a minimum set of assumptions. Unlike the standard framework, this model makes the natural rate of interest endogenous and dependent on macroeconomic policy. The main application is to study optimal monetary policy at the zero lower bound (ZLB). Such policy succeeds in raising the natural rate of interest by creating an environment that speeds up deleveraging and thus endogenously shortens the crisis and the duration of binding ZLB. Inflation should be front-loaded and should overshoot its longterm target during the ZLB episode.

Dynamic debt deleveraging and optimal monetary policy / Benigno, Pierpaolo; Eggertsson, G. B.; Romei, Federica. - In: AMERICAN ECONOMIC JOURNAL. MACROECONOMICS. - ISSN 1945-7707. - 12:2(2020), pp. 310-350. [10.1257/mac.20160124]

Dynamic debt deleveraging and optimal monetary policy

Benigno P.
;
Romei F.
2020

Abstract

This paper proposes a postcrisis New Keynesian model that incorporates agent heterogeneity in borrowing and lending with a minimum set of assumptions. Unlike the standard framework, this model makes the natural rate of interest endogenous and dependent on macroeconomic policy. The main application is to study optimal monetary policy at the zero lower bound (ZLB). Such policy succeeds in raising the natural rate of interest by creating an environment that speeds up deleveraging and thus endogenously shortens the crisis and the duration of binding ZLB. Inflation should be front-loaded and should overshoot its longterm target during the ZLB episode.
2020
Dynamic debt deleveraging and optimal monetary policy / Benigno, Pierpaolo; Eggertsson, G. B.; Romei, Federica. - In: AMERICAN ECONOMIC JOURNAL. MACROECONOMICS. - ISSN 1945-7707. - 12:2(2020), pp. 310-350. [10.1257/mac.20160124]
File in questo prodotto:
File Dimensione Formato  
2020-benigno-Dynamic Debt Deleveraging and Optimal Monetary Policy.pdf

Solo gestori archivio

Tipologia: Versione dell'editore
Licenza: DRM (Digital rights management) non definiti
Dimensione 936.11 kB
Formato Adobe PDF
936.11 kB Adobe PDF   Visualizza/Apri
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/199243
Citazioni
  • Scopus 12
  • ???jsp.display-item.citation.isi??? 10
social impact