Dynamic Debt Deleveraging and Optimal Monetary Policy

Gauti Eggertsson, Federica Romei and Pierpaolo Benigno

No 390, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies optimal monetary policy under dynamic debt deleveraging once the zero bound is binding. Unlike the existing literature, the natural rate of interest is endogenous and depends on macroeconomic policy. Optimal monetary policy successfully raises the natural rate of interest by creating an environment that speeds updeleveraging, thus endogenously shortening the duration of the crisis and a binding zero bound. Inflation should be front loaded. Fiscal-policy multipliers can be even higher than in existing models, but depend on the way in which public spending is financed.

Date: 2015
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Dynamic Debt Deleveraging and Optimal Monetary Policy (2020)
Working Paper: Dynamic Debt Deleveraging and Optimal Monetary Policy (2016)
Working Paper: Dynamic Debt Deleveraging and Optimal Monetary Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:390

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