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Are Supply Shocks Contractionary at the ZLB? Evidence from Utilization-Adjusted TFP Data

Listed author(s):
  • Julio Garín
  • Robert Lester
  • Eric Sims

The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. However, in line with the predictions of the basic model, positive productivity shocks have a stronger negative effect on inflation at the ZLB.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 22311.

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Date of creation: Jun 2016
Handle: RePEc:nbr:nberwo:22311
Note: EFG ME
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