New Keynesian dynamics in a low interest rate environment

R. Braun and Lena Mareen Korber
Authors registered in the RePEc Author Service: Lena Boneva

No 2011-10, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: Recent research has found that the dynamic properties of the New Keynesian model can be very different when the nominal interest rate is zero. Improvements in technology and reductions in the labor tax rate lower economic activity, and the size of the government purchase output multiplier can be well above one. This paper provides evidence that the focus on specifications of the New Keynesian model that produce unorthodox results in a liquidity trap may be misplaced. We show that a prototypical New Keynesian model fit to Japanese data exhibits orthodox dynamics during Japan's episode with zero interest rates. We then demonstrate that this specification is more consistent with outcomes in Japan than alternative specifications that have unorthodox properties.

Date: 2011
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (33)

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Related works:
Journal Article: New Keynesian dynamics in a low interest rate environment (2011)
Working Paper: New Keynesian Dynamics in a Low Interest Rate Environment (2010)
Working Paper: New Keynesian Dynamics in a Low Interest Rate Environment (2010)
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