Seven faces of "the peril"

By James Bullard. 2010

127 citations recorded by the source corpus.

In this paper the author discusses the possibility that the U.S. economy may become enmeshed in a Japanese-style deflationary outcome within the next several years. To frame the discussion, the author relies on an analysis that emphasizes two possible long-run steady states for the economy: one that is consistent with monetary policy as it has typically been implemented in the United States in recent years and one that is consistent with the low nominal interest rate, deflationary regime observed in Japan during the same period. The data considered seem to be quite consistent with the two steady-state possibilities. The author describes and critiques seven stories that are told in monetary policy circles regarding this analysis and emphasizes two main conclusions: (i) The Federal Open Market Committee's "extended period" language may be increasing the probability of a Japanese-style outcome for the United States and (ii), on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/0dd6453255fb446ce8359172130ca1a8f2dc4218

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Citations in the corpus

Inflation and the Fiscal Limit (2010, background): “The literature is too voluminous to cite every worthy paper here, but our paper is most similar in spirit to that of Drazen and Helpman (1990). They examine a simple endowment economy and show how uncertainty about policy switches between expenditure cuts, tax increases or increases in money growth ”
A Model of Secular Stagnation (2014, background): “23For further discussion on the stability properties in Benhabib, Schmitt-Grohé and Uribe (2001), see Bullard (2010). where dt is the exogenous collateral shock and gt is the exogenous population growth shock.”
Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries (2016, background): “Louis, James Bullard wrote: “During this recovery, the U.S. economy is susceptible to negative shocks that may dampen inflation expectations. This could push the economy into an unintended, low nominal interest rate steady state. Escape from such an outcome is problematic. [...] The United States is”