Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70617
Authors: 
Braun, R. Anton
Körber, Lena Mareen
Year of Publication: 
2011
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2011-10
Abstract: 
Recent research has found that the dynamic properties of the New Keynesian model can be very different when the nominal interest rate is zero. Improvements in technology and reductions in the labor tax rate lower economic activity, and the size of the government purchase output multiplier can be well above one. This paper provides evidence that the focus on specifications of the New Keynesian model that produce unorthodox results in a liquidity trap may be misplaced. We show that a prototypical New Keynesian model fit to Japanese data exhibits orthodox dynamics during Japan's episode with zero interest rates. We then demonstrate that this specification is more consistent with outcomes in Japan than alternative specifications that have unorthodox properties.
Subjects: 
government purchases
zero nominal interest rates
monetary policy
JEL: 
E3
E5
E6
Document Type: 
Working Paper

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