Nonlinear Adventures at the Zero Lower Bound

47 Pages Posted: 8 May 2012

See all articles by Jesús Fernández-Villaverde

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Grey Gordon

Indiana University

Pablo Guerrón-Quintana

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: May 4, 2012

Abstract

Motivated by the recent experience of the U.S. and the Eurozone, we describe the quantitative properties of a New Keynesian model with a zero lower bound (ZLB) on nominal interest rates, explicitly accounting for the nonlinearities that the bound brings. Besides showing how such a model can be efficiently computed, we find that the behavior of the economy is substantially affected by the presence of the ZLB. In particular, we document 1) the unconditional and conditional probabilities of hitting the ZLB; 2) the unconditional and conditional probabilty distributions of the duration of a spell at the ZLB; 3) the responses of output to government expenditure shocks at the ZLB, 4) the distribution of shocks that send the economy to the ZLB; and 5) the distribution of shocks that keep the economy at the ZLB.

Keywords: Zero lower bound, New Keynesian models, Nonlinear solution methods

JEL Classification: E30, E50, E60

Suggested Citation

Fernández-Villaverde, Jesús and Gordon, Grey and Guerron-Quintana, Pablo and Rubio-Ramirez, Juan Francisco, Nonlinear Adventures at the Zero Lower Bound (May 4, 2012). FRB of Philadelphia Working Paper No. 12-10. Available at SSRN: https://ssrn.com/abstract=2053153 or http://dx.doi.org/10.2139/ssrn.2053153

Jesús Fernández-Villaverde (Contact Author)

University of Pennsylvania - Department of Economics ( email )

3718 Locust Walk
160 McNeil Building
Philadelphia, PA 19104
United States
215-898-1504 (Phone)
215-573-2057 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Grey Gordon

Indiana University ( email )

Wylie Hall
100 S Woodlawn Ave
Bloomington, IN 47401
United States

Pablo Guerron-Quintana

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8057 (Phone)
404-498-8956 (Fax)

HOME PAGE: http://www.econ.umn.edu/~rubio

Register to save articles to
your library

Register

Paper statistics

Downloads
44
Abstract Views
568
PlumX Metrics