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Monetary steady states in a low real interest rate economy

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  • James Bullard
  • Steve Russell

Abstract

We study the properties of an overlapping generations model with many-period-lived agents, neoclassical production and capital accumulation, labor-leisure decisions, population growth, and technological progress. We demonstrate that a plausibly calibrated version of this model has "monetary steady states" -Samuelson-case steady states with large real stocks of unbacked government debt. These steady states can duplicate a number of important features of U.S. postwar data, including three phenomena that challenge other sorts of calibrated models: the low average real interest rate on U.S. government debt, the government's success in reducing the debt/GDP ratio without running large budget surpluses and the relatively high ratio of net saving to output.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1994-012.

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Date of creation: 1998
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Publication status: Published in Journal of Monetary Economics, v. 44, no. 3, December 1999, pp 477-508 (title: An empirically plausible model of low real interest rates and unbacked government debt)
Handle: RePEc:fip:fedlwp:1994-012

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Keywords: Interest rates ; Debts; Public;

References

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Cited by:
  1. Chalk, Nigel A., 2000. "The sustainability of bond-financed deficits: An overlapping generations approach," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 293-328, April.
  2. James Bullard & John Keating, 1994. "Superneutrality in postwar economies," Working Papers 1994-011, Federal Reserve Bank of St. Louis.
  3. Elder, Erick, 1999. "Dynamic Fiscal Policy with Regime-Duration Uncertainty: The Tax-Cut Case," Journal of Macroeconomics, Elsevier, vol. 21(1), pages 29-55, January.

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