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Division of International Finance. Board of Governors of the Federal Reserve System. Washington, D.C. 20551.

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With Sanjay R. Singh (UC Davis)

We theoretically explore long-run stagnation at the zero lower bound in a representative agent framework. We analytically compare expectations-driven stagnation to a secular stagnation episode and find contrasting policy implications for changes in government spending, supply shocks and neo-Fisherian policies. On the other hand, a minimum wage policy is expansionary and robust to the source of stagnation. Using Bayesian methods, we estimate a DSGE model that can accommodate two competing hypotheses of long-run stagnation in Japan. We document that equilibrium selection under indeterminacy matters in accounting for model fit.

Link to local copy. First version: August 2018. This version: February 2019.
Link to International Finance Discussion Papers 1243.