Expectations and Policies in Deflationary Recessions

Luca Vittorio Angelo Colombo, Gerd Hellmut Weinrich

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In this paper we use a non-tatonnement dynamic macroeconomic model to study the role of inventories, expectations and wages in the business cycle. Following a restrictive monetary shock, by amplifying spillover effects inventories may imply that the economy converges to a deflationary locally stable Keynesian underemployment state. The model is applied to evaluate economic policies like quantitative easing as well as the effectiveness of holding inflationary expectations to recover to full employment. If inflationary expectations are not sufficient, imposing downward rigidity of nominal wages helps to exit from the recession.
Lingua originaleEnglish
pagine (da-a)224-250
Numero di pagine27
Stato di pubblicazionePubblicato - 2018


  • deflationary recessions
  • expectations
  • liquidity trap
  • non-neutrality of money
  • quantitative easing


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