The unbearable lightness of equilibria in a low interest rate environment (co-authored with Guido Ascari)
Structural models with no solution are incoherent, and those with multiple solutions are incomplete. We develop a method to study coherency and completeness conditions for linear dynamic forward-looking rational expectations models under an occasionally binding constraint. In the context of the simple New Keynesian model with a zero lower bound, this method shows that the coherency and completeness condition generally violates the Taylor principle. Rational expectations require time-varying and correlated support restrictions on the distribution of the structural shocks. With appropriate restrictions, a very large number of equilibria can be supported.

Link to paper: arxiv.org/abs/2006.12966
Date: 4 February 2021, 13:00 (Thursday, 3rd week, Hilary 2021)
Venue: Held on Zoom
Speaker: Sophocles Mavroeidis (University of Oxford)
Organising department: Department of Economics
Part of: Department of Economics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Melis Clark