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Our model successfully generates the estimated positive local multiplier, a result that distinguishes our incomplete markets model from models with complete markets.The aggregate consumption multiplier is 0.4, which implies an output multiplier higher than one.Sustained periods when the real interest rate remains below the central bank's estimate of r-star can induce the agent to place a substantially higher weight on the deflation equilibrium, causing it to occasionally become self-fulfilling. In model simulations, raising the central bank's inflation target to 4% from 2% can reduce, but not eliminate, the endogenous switches to the deflation equilibrium.I solve for the time series of stochastic shocks and endogenous forecast rule weights that allow the model to exactly replicate the observed time paths of the U. To understand the determinants of financial crises, previous research focused on developments closely related to financial markets.In this paper, we propose a procedure based on mixed-frequency models and network analysis to help address both of these policy concerns.
Is it higher than the growth rate of the economy and, if so, by how much?
We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing.
The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.
In contrast, this paper considers changes originating in the real economy as drivers of financial instability.
Based on long-run historical data for advanced economies, I find that rising top income inequality and low productivity growth are robust predictors of crises – even outperforming wellknown early-warning indicators such as credit growth.
Our results illustrate the efficacy of such modeling techniques for monitoring and potentially enhancing national financial stability.