Dynamic Debt Deleveraging and Optimal Monetary Policy

Benigno, Pierpaolo; Eggertsson, Gauti B.; Romei, Federica (2020). Dynamic Debt Deleveraging and Optimal Monetary Policy. American economic journal. Macroeconomics, 12(2), pp. 310-350. American Economic Association 10.1257/mac.20160124

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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 long-term target during the ZLB episode.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Benigno, Pierpaolo

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

1945-7707

Publisher:

American Economic Association

Language:

English

Submitter:

Dino Collalti

Date Deposited:

11 Jan 2021 14:22

Last Modified:

11 Jan 2021 14:31

Publisher DOI:

10.1257/mac.20160124

BORIS DOI:

10.48350/150272

URI:

https://boris.unibe.ch/id/eprint/150272

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