Advanced Search
MyIDEAS: Login to save this article or follow this journal

New Keynesian dynamics in a low interest rate environment

Contents:

Author Info

  • Braun, R. Anton
  • Körber, Lena Mareen

Abstract

Recent research has found that the dynamic properties of the New Keynesian model are unorthodox when the nominal interest rate is zero. Improvements in technology and reductions in the labor tax rate lower economic activity and the size of the government purchase output multiplier is very large. This paper provides evidence that these results are not empirically relevant. We show that a prototypical New Keynesian model fit to Japanese data exhibits orthodox dynamics during Japan's episode with zero interest rates. We then demonstrate that this specification is more consistent with outcomes in Japan than alternative specifications that have unorthodox properties.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0165188911001564
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 12 ()
Pages: 2213-2227

as in new window
Handle: RePEc:eee:dyncon:v:35:y:2011:i:12:p:2213-2227

Contact details of provider:
Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Government purchases; Zero nominal interest rates; Monetary policy; Liquidity trap; Fiscal policy;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Adam, Klaus & Billi, Roberto M, 2003. "Optimal Monetary Policy Under Commitment with a Zero Bound on Nominal Interest Rates," CEPR Discussion Papers 4111, C.E.P.R. Discussion Papers.
  2. Aubhik Khan & Robert G. King & Alexander L. Wolman, 2003. "Optimal Monetary Policy," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(4), pages 825-860, October.
  3. Rotemberg, Julio J., 1996. "Prices, output, and hours: An empirical analysis based on a sticky price model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(3), pages 505-533, June.
  4. Anton Nakov, 2006. "Optimal and Simple Monetary Policy Rules with Zero Floor on the Nominal Interest Rate," Banco de Espa�a Working Papers 0637, Banco de Espa�a.
  5. Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Optimal simple and implementable monetary and fiscal rules," Working Paper, Federal Reserve Bank of Atlanta 2007-24, Federal Reserve Bank of Atlanta.
  6. Ichiro Muto, 2009. "Estimating A New Keynesian Phillips Curve With A Corrected Measure Of Real Marginal Cost: Evidence In Japan," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 667-684, October.
  7. Adam, Klaus & Billi, Roberto M., 2007. "Discretionary monetary policy and the zero lower bound on nominal interest rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(3), pages 728-752, April.
  8. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  9. Keiichiro Kobayashi & Masaru Inaba, 2006. "Business cycle accounting for the Japanese economy," 2006 Meeting Papers, Society for Economic Dynamics 313, Society for Economic Dynamics.
  10. Lawrence J. Christiano & Martin Eichenbaum & Sergio Rebelo, 2010. "When is the government spending multiplier large?," CQER Working Paper 2010-01, Federal Reserve Bank of Atlanta.
  11. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics, EconWPA 0505012, EconWPA.
  12. Hibiki Ichiue & Yoichi Ueno, 2007. "Equilibrium Interest Rate and the Yield Curve in a Low Interest Rate Environment," Bank of Japan Working Paper Series 07-E-18, Bank of Japan.
  13. Kaiji Chen & Ayse Imrohoroglu & Selo Imrohoroglu, 2005. "Japanese Saving Rate," Macroeconomics, EconWPA 0502017, EconWPA.
  14. Gauti Eggertsson, 2010. "The paradox of toil," Staff Reports 433, Federal Reserve Bank of New York.
  15. R. Anton Braun & Daisuke Ikeda & Douglas H. Joines, 2007. "The Saving Rate in Japan: Why It Has Fallen and Why It Will Remain Low," CIRJE F-Series CIRJE-F-535, CIRJE, Faculty of Economics, University of Tokyo.
  16. Jung, Taehun & Teranishi, Yuki & Watanabe, Tsutomu, 2005. "Optimal Monetary Policy at the Zero-Interest-Rate Bound," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(5), pages 813-35, October.
  17. R. Anton Braun & Yuichiro Waki, 2006. "Monetary Policy During Japan'S Lost Decade," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 57(2), pages 324-344.
  18. Selahattin Imrohoroglu & Ayse Imrohoroglu & Kaiji Chen, 2006. "The Japanese Saving Rate," American Economic Review, American Economic Association, vol. 96(5), pages 1850-1858, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Tobias Cwik, 2012. "Fiscal consolidation using the example of Germany," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2012-80, Board of Governors of the Federal Reserve System (U.S.).
  2. Carlstrom, Charles & Fuerst, Timothy & Paustian, Matthias, 2012. "Inflation and output in New Keynesian models with a transient interest rate peg," Bank of England working papers 459, Bank of England.
  3. William Gavin & Benjamin Keen, 2013. "U.S. Monetary Policy: A View from Macro Theory," Open Economies Review, Springer, vol. 24(1), pages 33-49, February.
  4. Tom Holden & Michael Paetz, 2012. "Efficient Simulation of DSGE Models with Inequality Constraints," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 21207b, Hamburg University, Department of Economics.
  5. Chen, Han, 2014. "Assessing the Effects of the Zero-Interest-Rate Policy through the Lens of a Regime-Switching DSGE Model," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2014-38, Board of Governors of the Federal Reserve System (U.S.).
  6. Nao Sudo, 2011. "Accounting for the Decline in the Velocity of Money in the Japanese Economy," IMES Discussion Paper Series 11-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
  7. Rod Tyers & Jenny Corbett, 2011. "Japan's Economic Slowdown and its Global Implications: A Review of the Economic Modelling," Economics Discussion / Working Papers 11-19, The University of Western Australia, Department of Economics.
  8. Campbell Leith & Ding Liu, 2014. "The in‡flation bias under Calvo and Rotemberg pricing," Working Papers, Business School - Economics, University of Glasgow 2014_06, Business School - Economics, University of Glasgow.
  9. Ippei Fujiwara, 2010. "Export shocks and the zero bound trap," Globalization and Monetary Policy Institute Working Paper 63, Federal Reserve Bank of Dallas.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:35:y:2011:i:12:p:2213-2227. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.