Thomas Palley — The Fallacy Of ZLB Economics

Thomas Palley has a new paper titled Zero Lower Bound (ZLB) Economics: The Fallacy of New Keynesian Explanations of Stagnation with the link on his blog.

Abstract:

This paper explores zero lower bound (ZLB) economics. The ZLB is widely invoked to explain stagnation and it fits with the long tradition that argues Keynesian economics is a special case based on nominal rigidities. The ZLB represents the newest rigidity. Contrary to ZLB economics, not only does a laissez-faire monetary economy lack a mechanism for delivering the natural rate of interest, it may also lack such an interest rate. Moreover, the ZLB can be a stabilizing rigidity that prevents negative nominal interest rates exacerbating excess supply conditions.

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