EXPECTATIONS, STAGNATION, AND FISCAL POLICY: A NONLINEAR ANALYSIS

Stagnation and fiscal policy are examined in a nonlinear stochastic New-Keynesian model with adaptive learning. There three steady states. The state targeted by is locally but not globally stable under A severe pessimistic expectations shock can trap the economy stagnation regime, underpinned low-level state, falling inflation output. large stimulus may be needed to avoid or emerge from stagnation, impacts of forward guidance, credit frictions, central bank credibility, delay studied. Our encompasses wide range outcomes arising shocks.