arXiv subjects

Chunbing Cai

Publications and source records attributed to Chunbing Cai.

2 recordsLinked to original sources

arXiv2025

Endogenous Persistence at the Effective Lower Bound

We develop a perfect foresight method to solve models with an interest rate lower bound constraint that nests OccBin/DynareOBC and \cite{Eggertsson2010}'s as well as \cite{Mertens2014}'s pen and paper solutions as special cases. Our method generalizes the pen-and-paper solutions by allowing for endogenous persistence while maintaining tractability and interpretability. We prove that our method necessarily gives stable multipliers. We use it to solve a New Keynesian model with habit formation and government spending, which we match to expectations data from the Great Recession. We find an output multiplier of government spending close to 1 for the US and Japan.

econ.GN↗

arXiv2023

Simple Analytics of the Government Investment Multiplier

What are the effects of investing in public infrastructure? We answer this question with a New Keynesian model. We recast the model as a Markov chain and develop a general solution method that nests existing ones inside/outside the zero lower bound as special cases. Our framework delivers a simple expression for the contribution of public infrastructure. We show that it provides a unified framework to study the effects of public investment in three scenarios: $(i)$ normal times $(ii)$ short-lived liquidity trap $(iii)$ long-lived liquidity trap. We find that calibrations commonly used lead to multipliers that diverge with the duration of the trap.

econ.GN↗