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Monetary steady states in a low real interest rate economy

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  • James B. Bullard
  • Steven 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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  • James B. Bullard & Steven Russell, 1998. "Monetary steady states in a low real interest rate economy," Working Papers 1994-012, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:1994-012
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    2. James B. Bullard & John W. Keating, 1994. "Superneutrality in postwar economies," Working Papers 1994-011, Federal Reserve Bank of St. Louis.
    3. 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.

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