Expectations and the Zero Lower Bound
I consider the welfare consequences of information frictions at the zero lower bound. Households are assumed to know that interest rates are at zero, but have imperfect information about the precise state of the economy. I prove that this information friction acts like an actuarially fair insurance mechanism on the aggregate level. It therefore raises aggregate efficiency from an ex-ante perspective. The model matches output and inflation during the Great Recession, once one assumes that firms’ perceived persistence of the shock was low at the beginning of the Great Recession.

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Date: 19 November 2019, 16:30 (Tuesday, 6th week, Michaelmas 2019)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room A
Speaker: Mirko Wiederholt (Sciences Po)
Organising department: Department of Economics
Part of: Macroeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Melis Clark