Policy Paradoxes in the New Keynesian Model

By Michael T. Kiley. 2016

136 citations recorded by the source corpus.

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)

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/9a7b2cfb4a27cd89d982f70367d88df61699ab1e

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In Economics and Econometrics

Citations in the corpus

Delphic and odyssean monetary policy shocks: Evidence from the euro area (2018, background): “Bringing discounting to the linearized inter-temporal consumption Euler equation reduces the impact of these policies, as discussed by Kiley (2016), McKay, Nakamura and Steinsson (2015). Moreover, information imperfections and heterogeneous believes can generate macroeconomic outcomes that are at th”
Forward Guidance and Macroeconomic Outcomes since the Financial Crisis (2016, background): “As discussed by Campbell, Fisher, Justiniano, and Melosi (2016), Carlstrom, Fuerst, and Paustian (2015), Kiley (2014), and McKay, Nakamura, and Steinsson (2015) the absence of discounting in standard models is essential to understanding why the effects of Odyssean guidance can be implausibly large…”