The closed economy macro literature has shown that a liquidity trap can result from the self-fulfilling expectation that future inflation and output will be low (Benhabib et al. (2001)). This paper investigates expectations-driven liquidity traps in a two-country New Keynesian model of a...

This paper studies a New Keynesian model of a two-country world with a zero lower bound (ZLB) constraint for nominal interest rates. A floating exchange rate regime is assumed. The presence of the ZLB generates multiple equilibria. The two countries can experience recurrent liquidity traps...

Empirically, output and asset returns are highly positively correlated across the United States and the other major industrialized countries. Standard business cycle models that assume flexible prices and wages, in the Real Business Cycle tradition, have great difficulties explaining this fact....

This paper constructs speculative bubbles in a Real Business Cycle (RBC) economy. Building on Blanchard’s (Economics Letters, 1979) classic analysis of speculative bubbles in asset pricing models, the bubbles studied here result from the absence of a transversality condition for production...

The unprecedented global recession triggered by the Covid pandemic was met with a broad range of massive monetary, fiscal and financial policy interventions to support households, businesses and financial institutions. The legacy of the Covid crisis includes record public debt, a global...