An analytical approach to new Keynesian models under the fiscal theory

Fei Tan ()

Economics Letters, 2017, vol. 156, issue C, 133-137

Abstract: This article illustrates a widely applicable frequency-domain methodology to solving multivariate linear rational expectations models. As an example, we solve a prototypical new Keynesian model under the assumption that primary surpluses evolve independently of government liabilities, a regime in which the fiscal theory of the price level is valid. The resulting analytical solution is useful in characterizing the cross-equation restrictions and illustrating the complex interaction between the fiscal theory and price rigidity. We also highlight some useful by-products of such method which are not easily obtainable for more sophisticated models using time-domain methods.

Keywords: Solution methods; Frequency domain; Fiscal theory of price level (search for similar items in EconPapers)
JEL-codes: C65 E62 E63 H63 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:156:y:2017:i:c:p:133-137

DOI: 10.1016/j.econlet.2017.05.001

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