Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212145 
Year of Publication: 
2009
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 24/2009
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We examine global economic dynamics under infinite-horizon learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja, European Economic Review (2008), we find that under normal monetary and fiscal policy the intended steady state is locally but not globally stable. Unstable deflationary paths can arise after large pessimistic shocks to expectations. For large expectation shocks that push interest rates to the zero lower bound, temporary increases in government spending can effectively insulate the economy from deflation traps
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-533-3
Document Type: 
Working Paper

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