New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model

Olatunji Shobande and Shodipe Oladimeji Tomiwa ()
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Shodipe Oladimeji Tomiwa: Eastern Illinois University, Illinois, USA

Economics and Business, 2019, vol. 33, issue 1, 152-169

Abstract: The study investigates the effect of New Keynesian liquidity trap on fiscal stance in the United States, United Kingdom and Japan economies. We developed our DSGE model in the context of an optimal and persistent interactive fiscal policy, which allows us to track the transmission channel through which shocks are distributed among real economic variables. The evidence suggests that zero lower bound mitigates the ability of monetary policy to absorb the effect of exogenous shock on the macroeconomic variables while expansionary fiscal policy was able to absorb the shock persistence transmitted from the nominal interest rate.

Keywords: Fiscal Policy; Liquidity Trap; Bayesian; DSGE Model (search for similar items in EconPapers)
JEL-codes: E13 E62 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ecobus:v:33:y:2019:i:1:p:152-169:n:11

DOI: 10.2478/eb-2019-0011

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