Policy Paradoxes in the New-Keynesian Model

Review of Economic Dynamics, 2016, vol. 21, 1-15

Abstract: The common sticky-prices New-Keynesian model behaves differently in a zero-lower bound environment. Fiscal and forward guidance multipliers can be very large. Positive supply shocks, such as an increase in productivity, will lower production, and increased price flexibility can exacerbate such a decline in output (as well as amplifying the effects of other shocks). These results are fragile and disappear under a plausible alternative to sticky prices (sticky information): Fiscal and monetary multipliers are smaller, positive supply shocks raise output, and greater price flexibility, in the sense of more frequent updating of information, moves the economy's response toward the neoclassical benchmark. (Copyright: Elsevier)

Keywords: New-Keynesian models of price adjustment; Zero-lower bound (search for similar items in EconPapers)
JEL-codes: E31 E52 E62 E63 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (88)

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2016.03.002
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Policy Paradoxes in the New-Keynesian Model" (2016)
Working Paper: Policy Paradoxes in the New Keynesian Model (2014)
Working Paper: Policy Paradoxes in the New-Keynesian Model (2014)
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:issued:14-286

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2016.03.002

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().