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6: Effect of raising the inflation target and multiple steady states (green line)

6: Effect of raising the inflation target and multiple steady states (green line)

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“Suppose that the short-term real interest rate that was consistent with full employment had fallen to −2% or −3% sometime in the middle of the last decade. Then, what would happen?". In this work I review the growing literature about the natural rate of interest and the specific perspective proposed by Lawrence Summers, namely the demand-side view...

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We investigate state‐dependent effects of fiscal multipliers and allow for endogenous sample splitting to determine whether the U.S. economy is in a slack state. When the endogenized slack state is estimated as the period of the unemployment rate higher than about 12%, the estimated cumulative multipliers are significantly larger during slack perio...