Working Paper: CEPR ID: DP11088
Authors: Charles Brendon; Giancarlo Corsetti
Abstract: We review the recent literature on macroeconomic stabilisation policy, with a particular focus on two major challenges that are particular to the post-crisis land- scape. These are, first, how to provide meaningful economic stimulus when the zero lower bound on nominal interest rates is binding. Second, how to design a stabilisation policy for the Eurozone that will remedy the large macroeconomic imbalances among member states.
Keywords: euroarea; crisis; global crisis; stabilization policies; zero lower bound
JEL Codes: E31; E32; E52; E58; E62; F45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| zero lower bound on nominal interest rates (E43) | decline in aggregate demand (E00) |
| decline in aggregate demand (E00) | decline in economic output (F44) |
| increased government spending (H59) | rise in GDP (E20) |
| forward guidance (E60) | stimulate demand (J23) |
| forward guidance (E60) | reduce real interest rate (E43) |
| reduce real interest rate (E43) | encourage current consumption (E21) |