Does Calvo Meet Rotemberg at the Zero Lower Bound?

Phuong Ngo and Jianjun Miao

No 602, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: This paper compares the Calvo model with the Rotemberg model in a fully nonlinear dynamic new Keynesian framework with an occasionally binding zero lower bound (ZLB) on nominal interest rates. Although the two models are equivalent to a first-order approximation, they generate very different results regarding the policy functions and the government spending multiplier based on nonlinear solutions. The multiplier in the Calvo model is less than one for low persistence of the government spending shock and rises above one as the persistence increases, but eventually decreases with the persistence and falls below one for sufficiently high persistence. In addition, the multiplier increases with the duration of the ZLB. By contrast, the multiplier in the Rotemberg model is less than one and decreases with the persistence. Surprisingly, it also decreases with the duration of the ZLB.

Date: 2015
New Economics Papers: this item is included in nep-dge and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_602.pdf (application/pdf)

Related works:
Journal Article: DOES CALVO MEET ROTEMBERG AT THE ZERO LOWER BOUND? (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:602

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().