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Time to Innovate and Aggregate Fluctuations: a New Keynesian Model with Endogenous Technology

Author

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  • Toshihiro Okada

    (School of Economics, Kwansei Gakuin University)

Abstract

This paper develops and estimates a new Keynesian (NK) model with endogenous technological change and explores, by means of Monte Carlo simulations, the role of endogenous technology in macroeconomic fluctuations. This paper shows that introducing endogenously-determined technology can solve three important puzzles faced by conventional NK models. The first is the "inflation persistence puzzle." The paper explains the persistence in inflation without relying on the ad hoc and empirically inconsistent assumptions made by conventional NK models. The second is the "disinflationary news shock puzzle." It explains the disinflationary effect of a news shock, which conventional NK models have difficulty explaining. The third is the "zero lower bound (ZLB) supply shock puzzle." The model avoids the conventional NK models f paradoxical, empirically inconsistent prediction that a negative supply shock is expansionary at the ZLB on nominal interest rates.

Suggested Citation

  • Toshihiro Okada, 2017. "Time to Innovate and Aggregate Fluctuations: a New Keynesian Model with Endogenous Technology," Discussion Paper Series 154, School of Economics, Kwansei Gakuin University, revised Dec 2018.
    • Handle: RePEc:kgu:wpaper:154
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    References listed on IDEAS

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    More about this item

    Keywords

    New Keynesian Models; Endogenous Technology; Phillips Curve; Inflation; News Shock.;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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