Macroeconomic Fluctuations with HANK & SAM: An Analytical Approach
Morten Ravn () and
No 1633, Discussion Papers from Centre for Macroeconomics (CFM)
New Keynesian models with unemployment and incomplete markets are rapidly becoming a new workhorse model in macroeconomics. Such models typically require heavy computational methods which may obscure intuition and overlook equilibria. We present a tractable version which can be characterized analytically. Our results highlight that - due the interaction between incomplete markets, sticky prices and endogenous unemployment risk - productivity shocks may have radically different effects than in traditional NK models, that the Taylor principle may fail, and that pessimistic beliefs may be self-fulfilling and move the economy into temporary episodes of low demand and high unemployment, as well as into a long-lasting "unemployment trap". At the Zero Lower Bound, the presence of endogenous unemployment risk can create inflation and overturn paradoxical properties of the model. We further study financial asset prices and show that non-negligible risk premia emerge.
Keywords: Sticky prices; Incomplete asset markets; Matching frictions; Multiple equilibria; Amplification (search for similar items in EconPapers)
JEL-codes: E10 E21 E24 E30 E52 (search for similar items in EconPapers)
Pages: 47 pages
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28) Track citations by RSS feed
Downloads: (external link)
http://www.centreformacroeconomics.ac.uk/Discussio ... MDP2016-33-Paper.pdf (application/pdf)
Journal Article: Macroeconomic Fluctuations with HANK & SAM: an Analytical Approach (2021)
Working Paper: Macroeconomic Fluctuations with HANK & SAM: an Analytical Approach (2017)
Working Paper: Macroeconomic Fluctuations with HANK & SAM: An Analytical Approach (2016)
Working Paper: Macroeconomic fluctuations with HANK & SAM: an analytical approach (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:1633
Access Statistics for this paper
More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Martin Hannon ().