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Global policy at the zero lower bound in a large-scale DSGE model

Listed author(s):
  • Gomes, Sandra
  • Jacquinot, Pascal
  • Mestre, Ricardo
  • Sousa, João

The purpose of this paper is to analyse whether fiscal policies can alleviate the effects of the zero lower bound (ZLB) on interest rates and if they should be coordinated internationally. The analysis is carried out using EAGLE, a DSGE model of the global economy. We consider that the fiscal shocks are temporary and that fiscal policy retains full credibility at all times. In this setup we find significant non-linearities in a ZLB situation that amplify the effects of fiscal shocks compared to the non-ZLB case. International coordination is helpful but does not play a major role in the results. JEL Classification: E40, E62, E63, F42

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Paper provided by European Central Bank in its series Working Paper Series with number 1254.

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Date of creation: Oct 2010
Handle: RePEc:ecb:ecbwps:20101254
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