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Some unpleasant properties of loglinearized solutions when the nominal rate is zero

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  • R. Anton Braun
  • Lena Mareen Korber
  • Yuichiro Waki

Abstract

Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian (NK) literature is that the answer to this question is yes. Evidence presented here suggests that the NK model's implications for fiscal policy at the zero bound may not be all that different from its implications for policy away from it. For a range of empirically relevant parameterizations, employment increases when the labor tax rate is cut and the government purchase multiplier is less than 1.05.

Suggested Citation

  • R. Anton Braun & Lena Mareen Korber & Yuichiro Waki, 2012. "Some unpleasant properties of loglinearized solutions when the nominal rate is zero," FRB Atlanta Working Paper 2012-05, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2012-05
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    More about this item

    Keywords

    zero lower bound; fiscal policy; new Keynesian model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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