Skip to content!

June 1, 2016

Seminar

Does the New Keynesian Model Have a Uniqueness Problem?
L. Christiano, M. Eichenbaum and B. Johannsen

Date

June 1, 2016
12:00 - 13:15

Location

Schumpeter Hall
Mohrenstr. 58
10117 Berlin

Speaker

Lawrence Christiano, Northwestern University

This paper addresses whether non-uniqueness of equilibrium is a substantive problem for policy analysis in New-Keynesian (NK) models. 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. In fact there is: stability-under-learning. We focus our analysis on the efficacy of …fiscal policy when the economy is in the ZLB. We study a fully non-linear NK model with Calvo-pricing frictions and argue that the model has a unique stable-under-learning rational expectations equilibrium. In that equilibrium, the implications of the model for …fiscal policy inherit all of the key properties of linearized NK models. We also …find that for empirically plausible cases, linear approximations work quite well for assessing the size of the government spending multiplier and the drop in GDP that occurs in the ZLB.

Contact

keyboard_arrow_up