Dordal-i-Carreras, Marc. <br/><br/>
Infrequent but Long-Lived Zero-Bound Episodes and the Optimal Rate of Inflation / 
Marc Dordal-i-Carreras, Olivier Coibion, Yuriy Gorodnichenko, Johannes Wieland. 
 - Cambridge, Mass.  National Bureau of Economic Research  2016. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w22510 .
 - Working Paper Series (National Bureau of Economic Research)  no. w22510. .
<br/><br/> August 2016. 
<br/><br/> Countries rarely hit the zero-lower bound on interest rates, but when they do, these episodes tend to be very long-lived. These two features are difficult to jointly incorporate into macroeconomic models using typical representations of shock processes. We introduce a regime switching representation of risk premium shocks into an otherwise standard New Keynesian model to generate a realistic distribution of ZLB durations. We discuss what different calibrations of this model imply for optimal inflation rates. 
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