Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284175 
Year of Publication: 
2023
Series/Report no.: 
Cardiff Economics Working Papers No. E2023/13
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
Developed economies have experienced slower growth since the 2008 Önancial crisis, creating fears of "secular stagnation." Rational expectations models have forward-looking bubble solutions, which could cause this; here we investigate the case of Japan. We show that a New Keynesian model with a weak equilibrium growth path driven by pessimism sunspot belief shocks matches economic behaviour. Another possibility is a conventional model where productivity growth has simply slowed down for unknown reasons. Nevertheless, a welfare-optimising approach implies Öscal policy should commit to eliminating the potential sunspot while being prepared to revert to normal policy if ináation rises.
Subjects: 
Secular stagnation
Pessimism sunspot
Indirect Inference
DSGE model
JEL: 
E5
E6
E32
Document Type: 
Working Paper

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