Some Unpleasant Properties of Log-Linearized Solutions When the Nominal Rate is Zero

Braun, R. Anton; Koerber, Lena M.; Waki, Yuichiro

doi:10.2139/ssrn.2479579

Cited by 55 publications

(52 citation statements)

References 24 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Following Hall (2005), the elasticity of job finding with respect to labor market tightness, η, is set to 0.765. 27 The efficiency of the matching function, ϕ, is such that the 26 See Braun et al (2012), Christiano and Eichenbaum (2012), Mertens and Ravn (forthcoming) and Cochrane (2013). 27 An elasticity of 0.765 is in the upper range of empirical estimates (see Petrongolo and Pissarides (2001) for a survey).…”

Section: Calibrationmentioning

confidence: 99%

Fiscal Policy in an Unemployment Crisis

Rendahl

2016

Review of Economic Studies

View full text Add to dashboard Cite

This paper shows that large fiscal multipliers arise naturally from equilibrium unemployment dynamics. In response to a shock that brings the economy into a liquidity trap, an expansion in government spending increases output and causes a fall in the unemployment rate. Since movements in unemployment are persistent, the effects of current spending linger into the future, leading to an enduring rise in income. As an enduring rise in income boosts private demand, even a temporary increase in government spending sets in motion a virtuous employment-spending spiral with a large associated multiplier. This transmission mechanism contrasts with the conventional view in which fiscal policy may be efficacious only under a prolonged and committed rise in government spending, which engineers a spiral of increasing inflation.

show abstract

Section: Calibrationmentioning

confidence: 99%

Fiscal Policy in an Unemployment Crisis

Rendahl

2016

Review of Economic Studies

View full text Add to dashboard Cite

show abstract

“…11 Braun, Körber, and Waki (2012) also take advantage of the simplicity brought by this price adjustment cost to compute the equilibrium of a nonlinear model of the zero lower bound. For other New Keynesian models using this price adjustment cost, see Hairault and Portier (1993), Chéron and Langot (2000), and Krause, Lopez-Salido, and Lubik (2008).…”

Section: A a New Keynesian Modelmentioning

confidence: 99%

A Theory of Countercyclical Government Multiplier

Michaillat

2014

American Economic Journal: Macroeconomics

103

112

View full text Add to dashboard Cite

A recent literature has argued that the effect of government policy can be different across stages of the business cycle if the zero lower bound on nominal interest rates is reached during a recession.1 In this paper, I present a New Keynesian model in which the effect of government policy varies across stages of the business cycle even when the zero lower bound does not bind.2 I consider a policy in which the government increases the size of the public-sector workforce. I measure the effect of this policy with the public-employment multiplier, defined as the additional number of workers employed when one more worker is employed in the public sector. I find that this multiplier doubles when the unemployment rate rises from 5 percent to 8 percent.In the model, the effect of government policy varies over the business cycle because of the structure of the labor market, adapted from the search-and-matching framework of Michaillat (2012). Since government and firms hire from the same 1 See for instance Christiano, Eichenbaum, and Rebelo (2011) and Eggertsson and Krugman (2012).

show abstract

“…The absence of other shocks makes it impossible to use the model to track actual data. Unfortunately, model properties tend to be very sensitive to the approximation technique and to implicit or explicit assumptions about the probability of leaving the ZLB, see Braun, Körber, and Waki (2012) and Fernández-Villaverde, Gordon, Guerrón-Quintana, and RubioRamírez (2012).…”

Section: Introductionmentioning

confidence: 99%

“…been studied by Braun, Körber, and Waki (2012), Christiano, Eichenbaum, andRebelo (2011), Fernández-Villaverde, Gordon, Guerrón-Quintana, andRubio-Ramírez (2012), Eggertsson (2009), andMertens andRavn (2014). Christiano, Eichenbaum, and Rebelo (2011) argue that the fiscal multiplier at the ZLB can be substantially larger than one.…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries

Aruoba¹,

Cuba‐Borda²,

Schorfheide³

2013

View full text Add to dashboard Cite

We propose and solve a small-scale New-Keynesian model with Markov sunspot shocks that move the economy between a targeted-inflation regime and a deflation regime and fit it to data from the U.S. and Japan. For the U.S. we find that adverse demand shocks have moved the economy to the zero lower bound (ZLB) in 2009 and an expansive monetary policy has kept it there subsequently. In contrast, Japan has experienced a switch to the deflation regime in 1999 and remained there since then, except for a short period. The two scenarios have drastically different implications for macroeconomic policies. Fiscal multipliers are about 20% smaller in the deflationary regime, despite the economy remaining at the ZLB. While a commitment by the central bank to keep rates near the ZLB doubles the fiscal multipliers in the targeted-inflation regime (U.S.), it has no effect in the deflation regime (Japan).

show abstract

Some Unpleasant Properties of Log-Linearized Solutions When the Nominal Rate is Zero

Cited by 55 publications

References 24 publications

Fiscal Policy in an Unemployment Crisis

Fiscal Policy in an Unemployment Crisis

A Theory of Countercyclical Government Multiplier

Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries

Contact Info

Product

Resources

About