  At the zero lower bound, the New Keynesian model predicts that output and
inflation collapse to implausibly low levels, and that government spending and
forward guidance have implausibly large effects. To resolve these anomalies, we
introduce wealth into the utility function; the justification is that wealth is
a marker of social status, and people value status. Since people partly save to
accrue social status, the Euler equation is modified. As a result, when the
marginal utility of wealth is sufficiently large, the dynamical system
representing the zero-lower-bound equilibrium transforms from a saddle to a
source---which resolves all the anomalies.
