The unbearable lightness of equilibria in a low interest rate\n environment

2020/06/20 by Guido Ascari, Sophocles Mavroeidis, Ascari, Guido +1 · 1 citation
Economics, Econometrics and Finance · #Economic Policies and Impacts #Economic theories and models #FOS: Economics and business #General Economics (econ.GN) #Monetary Policy and Economic Impact

paper · pdf · doi:10.48550/arxiv.2006.12966

openalex publication_date 2020/06/20 · openalex created_date 2022/07/26 · openalex updated_date 2026/07/28

Abstract

Structural models with no solution are incoherent, and those with multiple\nsolutions are incomplete. We show that models with occasionally binding\nconstraints are not generically coherent. Coherency requires restrictions on\nthe parameters or on the support of the distribution of the shocks. In presence\nof multiple shocks, the support restrictions cannot be independent from each\nother, so the assumption of orthogonality of structural shocks is incompatible\nwith coherency. Models whose coherency is based on support restrictions are\ngenerically incomplete, admitting a very large number of minimum state variable\nsolutions.\n

Cited by

• Clearing Up the Effective Lower Bound Morass

Related

• Coherence without Rationality at the Zero Lower Bound
• Coherence without rationality at the zero lower bound
• The Time-Interlaced Self-Consistent Master System of Heterogeneous-Agent Models
• Scale Invariance, Bounded Rationality and Non-Equilibrium Economics
• Structural Fragility and Constraint Accumulation: Interpretive Notes on Singularization in Coupled Feedback Systems