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A New Keynesian Model with Endogenous Technology Trend

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  • Kühn Stefan

    (METEOR)

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    Abstract

    This paper extends a New Keynesian model with features of endogenous growth. This allows temporary shocks to have persistent effects, which in turn feeds back to short run demand and thus changes both the short and medium run response of the economy. The first major finding is that the model explains consumption crowding-in. Furthermore, monetary policy affects long run output, and the paradox of thrift can occur. Finally, the analysis is extended with a zero bound on monetary policy. Besides causing a long run loss in output, the loss of power of monetary policy causes a more severe short run de deflationary spiral in the presence of endogenous growth. Additionally, fiscal policy becomes much more powerful.

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    Bibliographic Info

    Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 039.

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    Date of creation: 2010
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    Handle: RePEc:unm:umamet:2010039

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    Keywords: monetary economics ;

    References

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    2. Anton Nakov, 2008. "Optimal and Simple Monetary Policy Rules with Zero Floor on the Nominal Interest Rate," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 73-127, June.
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    5. Galí, Jordi & López-Salido, David & Vallés, Javier, 2004. "Understanding the effects of government spending on consumption," Working Paper Series 0339, European Central Bank.
    6. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
    7. Cogan, John F. & Cwik, Tobias J. & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," CFS Working Paper Series 2009/17, Center for Financial Studies (CFS).
    8. David Reifschneider & John C. Williams, 2000. "Three lessons for monetary policy in a low-inflation era," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 936-978.
    9. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
    10. Reifschneider, David & Willams, John C, 2000. "Three Lessons for Monetary Policy in a Low-Inflation Era," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 936-66, November.
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    15. Robert E. Hall, 2009. "By How Much Does GDP Rise if the Government Buys More Output?," NBER Working Papers 15496, National Bureau of Economic Research, Inc.
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    17. Christian J. Murray & Charles Nelson, 2000. "The Great Depression and Output Persistence," Discussion Papers in Economics at the University of Washington 0010, Department of Economics at the University of Washington.
    18. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
    19. Ward Romp & Jakob de Haan, 2007. "Public Capital and Economic Growth: A Critical Survey," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(s1), pages 6-52, 04.
    20. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    21. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
    22. Sandra Steindl & Gunther Tichy, 2009. "Cycles and growth: an introduction," Empirica, Springer, vol. 36(2), pages 159-164, May.
    23. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
    24. Stadler, George W, 1990. "Business Cycle Models with Endogenous Technology," American Economic Review, American Economic Association, vol. 80(4), pages 763-78, September.
    25. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
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