Banking systems have rapidly grown to a point where, for many countries, bank assets amount to multiples of GDP. As a consequence, governments' capacities to provide stability-enhancing fiscal guarantees against systemic crises can no longer be taken for granted. As regulation of dynamic...

Banking systems have rapidly grown to a point where for many countries bank assets amount to multiples of GDP. As a consequence, governmentfs capacity to provide stability-enhancing fiscal guarantees against systemic crises can no longer be taken for granted. As regulation of dynamic financial...

We examine global dynamics under infinite-horizon learning in New Keynesian models where the interest-rate rule is subject to the zero lower bound. The intended steady state is locally but not globally stable. Unstable deflationary paths emerge after large pessimistic shocks to expectations. For...