New Keynesian dynamics in a low interest rate environment

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

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 12, 2213-2227

Abstract: Recent research has found that the dynamic properties of the New Keynesian model are unorthodox 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 is very large. This paper provides evidence that these results are not empirically relevant. 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.

Keywords: Government purchases; Zero nominal interest rates; Monetary policy; Liquidity trap; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E3 E5 E6 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Related works:
Working Paper: 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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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:35:y:2011:i:12:p:2213-2227

DOI: 10.1016/j.jedc.2011.08.006

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