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New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model

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  • Shobande Olatunji Abdul

    (University of Aberdeen, Aberdeen, Scotland, UK)

  • Shodipe Oladimeji Tomiwa

    (Eastern Illinois University, Illinois, USA)

Abstract

The study investigates the effect of New Keynesian liquidity trap on fiscal stance in the United States, United Kingdom and Japan economies. We developed our DSGE model in the context of an optimal and persistent interactive fiscal policy, which allows us to track the transmission channel through which shocks are distributed among real economic variables. The evidence suggests that zero lower bound mitigates the ability of monetary policy to absorb the effect of exogenous shock on the macroeconomic variables while expansionary fiscal policy was able to absorb the shock persistence transmitted from the nominal interest rate.

Suggested Citation

  • Shobande Olatunji Abdul & Shodipe Oladimeji Tomiwa, 2019. "New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model," Economics and Business, Sciendo, vol. 33(1), pages 152-169, January.
    • Handle: RePEc:vrs:ecobus:v:33:y:2019:i:1:p:152-169:n:11
    DOI: 10.2478/eb-2019-0011
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    Cited by:

    1. Shodipe Oladimeji T. & Shobande Olatunji Abdul, 2021. "Monetary Policy Dynamics in the United States," Open Economics, De Gruyter, vol. 4(1), pages 14-30, January.

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    More about this item

    Keywords

    Fiscal Policy; Liquidity Trap; Bayesian; DSGE Model;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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