Global Policy at the Zero Lower Bound in a Large-Scale DSGE Model

Gomes, Sandra; Jacquinot, Pascal; Mestre, Ricardo; Sousa, Joao Miguel

doi:10.2139/ssrn.1683967

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Global Policy at the Zero Lower Bound in a Large-Scale DSGE Model

ECB Working Paper No. 1254

40 Pages Posted: 17 Oct 2010

See all articles by Sandra Gomes

Joao Miguel Sousa

Bank of Portugal

Date Written: September 28, 2010

Abstract

The purpose of this paper is to analyse whether fiscal policies can alleviate the effects of the zero lower bound (ZLB) on interest rates and if they should be coordinated internationally. The analysis is carried out using EAGLE, a DSGE model of the global economy. We consider that the fiscal shocks are temporary and that fiscal policy retains full credibility at all times. In this setup we find significant non-linearities in a ZLB situation that amplify the effects of fiscal shocks compared to the non-ZLB case. International coordination is helpful but does not play a major role in the results.

Keywords: Zero Lower Bound, Fiscal Multipliers, Monetary Policy, DSGE models

JEL Classification: E40, E62, E63, F42

Suggested Citation: Suggested Citation

Gomes, Sandra and Jacquinot, Pascal and Mestre, Ricardo and Sousa, Joao Miguel, Global Policy at the Zero Lower Bound in a Large-Scale DSGE Model (September 28, 2010). ECB Working Paper No. 1254, Available at SSRN: https://ssrn.com/abstract=1683967 or http://dx.doi.org/10.2139/ssrn.1683967