Does the New Keynesian Model Have a Uniqueness Problem?

Lawrence Christiano, Martin Eichenbaum and Benjamin K. Johannsen

No 24612, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper addresses whether non-uniqueness of equilibrium is a substantive problem for the analysis of fiscal policy in New-Keynesian (NK) models at the zero lower bound (ZLB). There would be a substantive problem if there were no compelling way to select among different equilibria that give different answers to critical policy questions. We argue that learnability provides such a criterion. We study a fully non-linear NK model with Calvo pricing frictions. Our main finding is that the model we analyze has a unique E-stable rational expectations equilibrium at the ZLB. That equilibrium is also stable-under-learning and inherits all of the key properties of linearized NK models for fiscal policy.

JEL-codes: E0 E3 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-dge and nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (22)

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