Real Rigidities and Optimal Stabilization at the Zero Lower Bound in New Keynesian Economies

Adiya Belgibayeva and Michal Horvath
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Adiya Belgibayeva: Birkbeck, University of London

No 1701, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: The paper re-visits the literature on real rigidities in New Keynesian models in the context of an economy at the zero lower bound. It identifies strategic interaction among price- and wage-setting agents in the economy as an important determinant of both optimal policy and economic dynamics in deep recessions. In particular, labour market segmentation is shown to have a significant influence on the length of the forward commitment to keep interest rates at zero, the magnitude of the fiscal policy responses as well as inflation volatility in the economy under optimal policy.

Keywords: zero lower bound; strategic complementarity; labour market; inflation; income tax; government spending. (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 E61 E62 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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https://eprints.bbk.ac.uk/id/eprint/19114 First version, 2017 (application/pdf)

Related works:
Journal Article: REAL RIGIDITIES AND OPTIMAL STABILIZATION AT THE ZERO LOWER BOUND IN NEW KEYNESIAN ECONOMIES (2019)
Working Paper: Real Rigidities and Optimal Stabilization at the Zero Lower Bound in New Keynesian Economies (2017)
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