Aruoba, S. Borağan; Cuba-Borda, Pablo; Schorfheide, Frank - 2016 - Current version: January 22, 2016
We compute a sunspot equilibrium in an estimated small-scale New Keynesian model with a zero lower bound (ZLB) constraint on nominal interest rates and a full set of stochastic fundamental shocks. In this equilibrium a sunspot shock can move the economy from a regime in which inflation is close...